How Did Credit Reports Start?

Written By Jeff Hindenach
Last updated February 8, 2019

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Credit Scores
May 9, 2016

Simple. Thrifty. Living.

Have you ever wondered how it came about that credit scores gained the power that they have? Here’s a brief outline of the evolving role of credit agencies in our society:

Long before any official credit reports existed, a person’s credit simply consisted of their local reputation: Were they generally a responsible citizen? Did they meet their commitments and obligations? Neighbors and merchants would make decisions about letting someone delay payment for purchases based on what they knew — or had heard —  of that person’s reputation.

As society became larger and less gossip-based, local groups of merchants (known as “mutual protection societies”) began pooling what they knew about individual consumers in informal written records. In the 1830s, this information began to be stored centrally, by separate franchised businesses which existed solely for this purpose. These businesses shared information only with merchants and with each other, but never with the consumer. In the days before computerized data systems, your credit report remained somewhat local; if you moved to a new region, you had a clean credit slate.

The various franchises gradually narrowed down into the big three credit reporting agencies, which handle almost all credit reporting today: Equifax, Transunion and Experian. Of these, Equifax is the oldest, formed in 1899 to keep customer records for a local retail grocers’ association. Each of these three companies (or “bureaus”) keeps a cumulative report of your financial behavior, which contains information on the following topics: Your payment record on bills, how much of your available credit you are currently using, the type of credit you have (credit card, mortgage loan, auto loan, etc.), the length of your credit history, and how many times a business has requested your credit score recently.

Related: Best Credit Report Monitoring Services

Each of the three credit agencies keeps a separate report on you, and these reports may contain different information. You can request a free copy of these reports once each year by going to this federally mandated website or by signing up for a truly free credit score service like Credit Sesame. If you want to monitor your credit reports more closely, you can sign up for credit report monitoring services that can also help protect you against identity theft. While it’s important to look at your credit reports and make sure they are accurate — and to dispute anything you see on the report which is not accurate — it’s also important to know your credit score. You must pay for receiving your credit score, however. The federal website mentioned above provides information on how to do this.

Credit scores range between 300 and 850, with anything over 750 considered “good” credit. A high credit score allows you to qualify for loans with lower interest rates, and these days it turns out to be important in numerous other areas of your life as well. Potential landlords will often check your credit score before deciding whether to rent to you, and employers and insurance companies even make decisions based on credit score. The expanding use of credit scores is somewhat controversial, but for now your best approach for a healthy financial future is to remember to pay each bill on time, and try to keep your credit card balances well below their limits.

If you need help raising your credit score, there are a few ways you can do it yourself, or you can reach our to a credit repair agency to help you. Here are some reputable credit repair companies.

About the Author

Jeff Hindenach

Jeff Hindenach is the co-founder of Simple. Thrifty. Living. He graduated from Bowling Green State University with a Bachelor's Degree in Journalism. He has a long history of financial journalism, with a background writing for newspapers such as the San Jose Mercury News and San Francisco Examiner, as well as writing on personal finance for The Huffington Post, New York Times, Business Insider, CNBC, Newsday and The Street. He believes in giving readers the tools they need to get out of debt.

  • Credit files system is a joke it dosnt protect me its a bullying tactic judging people on they’re past making peoples lives useless and these credit agencies need to reform it from 6 years to 2 years things can be on file and debts are automatically cancelled and file and score are reset holding people from credit at ransom for 6 years is a bullying tactic from a out dated industry it makes me and others angry

  • This is not in our constitution, the Social Security act wasn’t made for this purpose. We are being robbed by unscrupulous creditors using high percentage rates on innocent people, paying too much for something not worth the value they put on.

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