If you’ve ever checked your credit score, you’ve engaged with a credit bureau. These bureaus provide the service of analyzing individuals’ credit and how good their records are.
Credit bureaus are companies that gather information about a person’s history with borrowing money. The information is used to generate a score that grades people on their trustworthiness as a borrower. A good credit score makes it easier to get a loan, rent an apartment and other common activities. But how did credit bureaus get started doing this work, and how did they become trustworthy?
How Do Credit Bureaus Collect Information Currently?
Modern credit bureaus collect information from banks and businesses. Companies that you use regularly might send these bureaus updates about the accounts you have with them. Your public records may also to create your credit score. The specific sources may differ from bureau to bureau, so chances are your credit score will be slightly different depending on the service you use.
What Information Do They Collect?
Bureaus collect information that will help them assess individuals’ credit. This includes personal information, like your name and address, birth date, employers, and even how much money you make. This information can help them make sure all the data they find is about you.
Other information will be more directly related to your finances. Not just your repayment history, but also any potential black marks like bankruptcy, tax liens, repossession and more. They also look at the amount of credit you have available for use and how much you actually use.
How Did Credit Bureaus Start?
Credit bureaus got their start in 1776, just like the United States. The first attempt at gathering information so lenders could avoid untrustworthy borrowers was called “Society of Guardians for the Protection of Trade Against Swindlers and Sharpers” and it was started in London. They would present reports on potential borrowers to their members, and the reports would include not just relevant information on credit, but also local talk that couldn’t be verified.
Early attempts at protecting moneylenders were rough, but they led to the eventual foundation of credit bureaus. For many years, a person’s credit relied mostly upon their reputation, and less so on their actual spending and repayment history.
How Did Credit Bureaus Evolve?
By 1960, there were about 1,500 credit bureaus operating in the United States. However, these companies mostly could not confirm the information they gathered. They relied upon moneylenders to give them information on the people who used their services, which lead to mixed results.
They also used information on personal demographics, like race, religion and gender, for their profiles on people. Newspaper announcements were fair game for these bureaus. Most notably, they would interview a person’s neighbors and coworkers on a person’s reliability. Subjective sources like these could easily skew a credit report.
At this time, these reports were aimed at companies, not consumers. There was also no regulated scale of credit. Instead, lenders and company owners would make their decisions based on their personal opinions after looking at a report from the credit bureau. Consumers weren’t allowed to see these reports, and could not corroborate any of the information in them.
Over the course of the 1960s, these companies began to collaborate to create nationwide systems, sharing information around the country. Soon after, in 1971, the first regulating act for credit bureaus was passed. It was called the Fair Credit Reporting Act.
What Regulates Credit Bureaus?
As credit bureaus became ubiquitous and created powerful, national networks, the FCRA began to regulate their actions. It provided consumers with a series of rights, designed to prevent false information from becoming an indelible part of their credit reports.
It allowed consumers to check their files and dispute any inaccuracies they find. The act also required notification of people if their files resulted in any action against them. Outdated information had to be excluded from reports, and employers needed their employees’ consent to check these reports. This new law resulted in credit bureaus needing to find more reliable sources of information.
In 1996, a further amendment was added holding bureaus accountable for inaccurate information, making it illegal to check a person’s credit without a verifiable reason and other protections.
The history of credit bureaus includes a lot of reports of gossip and hard-to-verify information gathered from a variety of sources. Current bureaus use more reliable sources and are more accountable to consumers. Your credit report is just one part of building a financial future, so start our assessment today to prepare for your financial goals.