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Credit Bureau History Lesson…

Let’s take a brief look at how credit bureaus came into existence. Back in the good old days, if you applied for a loan, your credit file was ordered from the local credit bureau (all credit bureaus were local back than). A bookkeeper went in the back office, rummaged around for a bit and pulled out a paper file with the person’s name on it. Someone would look at the file and determine if they would offer you credit. If there was a questionable marking or error on the file, a simple phone call or visit to the office could clear the matter up.

Credit reporting agencies, historically referred to as credit bureaus, were first established by local retail stores and personal finance companies to share information on their customers. In 1906, the bureaus established a trade association called the Associated Credit Bureaus (ACB), to help facilitate the sharing of credit related information across the country. Apparently credit reporting was a hit because the membership of the ACB grew substantially, as did the number of people covered.  However, as late as the 1960s, technological limitations restricted the coverage of even the largest credit bureaus to only a few cities.

Back then, credit bureaus would collect every bit of information they could about a person, including employment history, marital status, age, race, religion, testimonials, and any other information they could get their hands on. With all that information at their fingertips, discrimination was not uncommon.

The true reason for the old time ‘Welcome Wagon”…..

If you’re old not old enough to know what the welcome wagon was- the welcome wagon was typically 2-3 women that would welcome someone to a new neighborhood when they moved in. The 2-3 women would knock on the door soon after you moved in and would bring a cake and some cookies… They would also look around the house, looking at furniture, decorations, children, and everything else you could imagine…. The welcome wagon would then go back to their true job- which was reporting the information that they discovered from their cake deliveries… They would report everything that they saw to the local credit bureaus, that is how they originally gathered information…..

A whole lot has changed since then. For one, laws prevent credit bureaus from discriminating or storing whatever they want. Second, the corporate titans have bought up all the local credit bureaus monopolized the business. Another change is the use of computers. Storing all those files in file folders in the back office and having a human review each file to make a lending decision became downright unmanageable. The advent of computers has allowed credit bureaus to maintain files on millions of people. Now, instead of having a person review each file, the computer uses a mathematical model and instantaneously spits out a number known as a credit score. The entire credit reporting system is now automated and lenders make credit decisions in minutes compared to what formerly took days or weeks.

The Fair Credit Reporting Act (FCRA) was passed to add accountability to the credit reporting process. Unfortunately, the FCRA did not fix credit reporting system’s problems.

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  1. credit restoration advice…

    My clients are American citizens in San Diego trying to buy a house sometime in 2009 but we have to fix some credit dings first. They looked at their free credit reports online at my office, but stupidly I did not print them. There were some mistakes o…

  2. bad credit repair…

    “In my opinion one of the biggest problems with our credit crunch and high foreclosure rate is bank reliance on FICO scores. FICO scores do a good job of reporting an individuals past history of repayment of debt. The biggest problem is the scores do…

  3. Jim Hogle says:

    Mike, Good Article, can you send the 2-3 women over with the cookies and cake? LOL Hey in all seriousness thanks for sharing all your knowledge in our industry. Its great to have a group like the boot camp that really wants to help our neighbors, friends and family first. Thanks keep up the great work… jim h

  4. MikeN says:

    The Thursday webinar was informative and useful. Look forward to hearing more

  5. EricPegler says:

    The credit bureaus were out of control in the 60’s and they still are spoutung out false info today!
    Thanks to credit repair companies we can keep them accountable.
    Eric

  6. Lonnie S says:

    Wow, welcome wagon, now those were the good ol’ days. But has the pendulum swung back where we need to make credit decisions more based on our own, first hand knowledge of someone’s ability to re-pay a loan versus the inacurracies that are on most reports today?

  7. Lon Dunn says:

    Quite an abbreviated lesson, and I always enjoy remembering how this all came about.

    It is fascinating to think that once the major agencies developed “scoring” lenders and consumers alike almost immediately took to the system. It is equally fascinating to think that the CRA’s actually attempt to put one’s entire financial picture, and history into a NUMERIC REPRESENTATION, as if that number were talismatic. I don’t think the person approving applications on the other end at the Stores, Car Lots and Banks realize how little time CAN take to change those scores, if someone knows how.

    The FTC says it must take TIME ( to rebuild credit ) but some errors are so egregious, that they are corrected I have found about 42% of the time with the first letter. Sure, the CRA’s play stubborn sometimes, but if you are really just helping clients by writing lettes disputing what is patently incorrect, the CRA’s generally cave in pretty easily.

  8. George Christenakis says:

    Webinar on 7/30 was very informative- thanks

  9. fix my credit…

    Although you might think you only need to fix your credit report by talking to Equifax or one of the bureaus, you’ ll have the best luck if you also contact the creditor. Generally, you’ ll want to speak to the billing department because they are t…

  10. Edward Brent says:

    as always, the information mike gives is truly a blessing from above. he is a true genius in this field.

  11. garr says:

    Great article Mike,

    I appreciate the wealth of knowledge you bring to the credit scoring industry

  12. Great Article! I learn something new every time I come here. I have learned more about the credit industry in the last 5 months from Mike than I have in years of the business! Thank you again Mike

    Rondi Lambeth

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