Money lenders realized early on that certain patterns emerged with their customers. Usually, if a borrower paid off the loan in a timely manner, or defaulted on a loan, they were prone to repeat the same behavior in the future. Thus, a need to share customer information between lenders was also realized so that these patterns could be analyzed in future loan decisions.
Local credit bureaus began to form in the mid 1800s which recorded and sold the credit records of citizens to lenders for a fee. Brooklyn, New York produced one of the nation’s first of these credit bureaus in 1860.
Equifax, one of the top three credit bureaus today, grew from The Retail Credit Co. which began in 1899. Two brothers living in Atlanta started a Merchants Guide which they sold to local grocers. Another successful credit bureau began in Dallas which was sold in 1988 to TRW, one of the largest bureaus at the time.
The first national credit organization was created in 1906 called the National Association of Retail Credit Agencies. It began with a network of six smaller bureaus and today contains over 300 reporting companies and is now know as the Consumer Data Industry Association.
Credit bureaus saw a significant increase in number in the 1920s and the 1950s as more lenders were requiring their services. In the 1920s, the boom was sparked by the issuing of the first credit cards and the 1950s growth was triggered by the issuing of Bank of America, Diners Club and American Express cards.
By the mid 1970s, approximately 2,250 individual credit agencies existed across the nation. With the birth of the internet, these companies expanded from local to national networks and the larger national bureaus began rapidly swallowing up the smaller ones. The 1980s saw only five major players remaining: TRW, Chilton Corporation, TransUnion, Pinger Systems and Equifax.
Today, only three main bureaus are used by over 90% of lending institutions for acquiring customer credit reports. These are Equifax (which bought Pinger), Experian (which bought the merged Chilton and TRW) and TransUnion. There still exist 220 smaller, independent credit bureaus which continue the practice of reselling customer credit information.
In 1970, the Fair Credit Reporting Act was passed which grants all individuals the right to receive one free credit report every 12 months from the three largest bureaus. Individuals also have the right to dispute any negative item listed on their report as well as have incorrect information changed. Disputes must be validated by the creditors within 30 days or the disputed listings are to be removed by the credit bureaus.