A Brief History of Credit Reporting and Scoring
By Sharon Secor
of credit reporting and scoring works nearly seamlessly to provide potential lenders, employers, landlords
and others with the information they need to make various types of decisions. However, it was not always
as smooth or as transparent of a system as it is today. The credit reporting and scoring system of
today has evolved from loosely organized local exchanges of information between interested parties,
primarily for the benefit of creditors and lenders, to a system that is beneficial to all parties involved.
Credit reporting was born during the 19th century, when small retail merchants traded financial information about their customers. These "merchant associations" eventually organized into small credit bureaus. In
the early days of credit reporting and scoring, as the 19 th century came to an end and the prosperity
heralded in by the second wave on the Industrial Revolution settled into the middle class, it was
an informal system of information exchange between local retailers. As the 20 th century began to
take hold, it was shaped by modern era inventions in transportation and communications, such as the
automobile and the telephone. In a sense, as these became more common, the world became a smaller
place. People could travel farther to do business and creditors could easily share information throughout
a broader region.
As communication technology continued to develop, these loose-knit
organizations began to solidify into fledgling credit bureaus. The advent of the computer launched
the modern day credit bureau, permitting vast data storage and information sharing with a quickness
and ease that was just not possible before. Smaller, more regional credit reporting bureaus merged,
and continued their merging until the credit reporting giants of today came into being, with Equifax,
Trans Union and Experian being among the best known.
As the credit bureaus
themselves evolved, so did their importance in the lives of the average person. That made the
information collected and how it was used much more critical than in times past, when limitations
in communication and information exchange prevented a credit report or score from shadowing a
person throughout their day-to-day life.
In the early days, all sorts of
information was collected and recorded, not just financial. Intimate details of personal lives,
such as divorce and even dating behavior, health, drinking habits, and sexual orientation were collected from many sources, including
newspapers and local gossip. Furthermore, because the whole concept of credit information exchange
was developed to benefit creditors, lenders, retailers, etc., the private citizen had no right
to access, no right to even know what was on their credit report. As credit bureaus became
national and information almost effortlessly exchanged from coast to coast, the influence of
the credit report on the lives and opportunities of average citizen became much greater.
groups formed and began to address consumer rights, and were successful in achieving legislative
change in 1971, with the Fair Credit Reporting Act. Before, only negative financial information
was recorded, but with the Fair Credit Reporting Act, positive information also had to be
added to the record. The consumer won the right to view their entire credit report, as well
as to dispute errors and have the credit report corrected. Furthermore, significant rules
about privacy and the types of information used, as well as concerning how information was
used, came into being. But, these reforms still left the information that consumers could
access about themselves incomplete. In 2001, the final veil of secrecy was lifted, with legislation
being added to allow consumers the right to view their credit scores. Today, all credit reporting
and scoring information must be provided in a timely fashion and at an affordable rate, with
many being eligible to receive that information free of charge.
credit reporting and scoring systems have evolved right along side of our society and modern
economic system. As the rise of modern transportation and communication affected how and
where people conducted their business, credit bureaus responded to an increasingly mobile
society by coming together to extend their reach throughout the nation. As the information
age came into being, and the power that the credit reporting bureaus had over the day-to-day
life of a person grew, legislation arose to bring about the balance of power we have today,
allowing credit reporting agencies to be beneficial not only to creditor and lenders, but
also to the consumers themselves.
Other historical perspectives: History of Credit | History of Formal Lending | Women and Credit
Disclaimer: We have built this resource with great care and expertise. We try to keep the articles current and up-to-date, but this isn't always possible given the ever-changing financial and lending markets. As such, DirectLendingSolutions.com provides no guarantees, and NO WARRANTY, expressed or implied, for the accuracy of any information provided, or its applicability to your financial situation. We strongly suggest that you consult your own financial advisor to determine the best course of action for your financial situation.