In , the Fair and Accurate Credit Transactions Act enabled anyone to get one copy per year of their credit report from each of the three credit bureaus.
Consumers can also get those credit reports at www. Even your credit card will provide updates on your credit score. Market Realist is a registered trademark. 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 , 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. 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.
Liz is a financial advisor and co-founder of Direct Lending Solutions. See the results of our Family Budget Survey. Click Here to Learn More!
Your credit score is, for better or worse and often worse one of the more important numbers in your adult life. It could determine if you can ever own your own home.
It might even determine if you get that dream job. But how did this important number come to be? Instead, it went a little something like this …. Since the first caveman, Gug, asked his neighbor, Gorf, to borrow some wood to make a fire, lenders have had to consider whether the loans they offer will be paid back.
What if Gug runs away to a different cave and Gorf never sees his wood again? Even as early credit bureaus started to emerge , representatives would often speak to local businesses to find out if a particular applicant was reliably paying the money they owed in a reasonable manner. Additionally, potential lenders would usually rely on character judgments.
Well, Bill Fair, himself, of course. In , engineer Bill Fair teamed up with mathematician Earl Isaac to create Fair, Isaac and Company, with the goal of creating a standardized, impartial credit scoring system.
In many rural areas of Canada, everyone knew everyone else, so the people who had a tendency to not pay their debts had a reputation business owners were well aware of.
When business owners in those rural areas wanted to get a loan from a creditor in one of the cities, they had their rural neighbors and customers vouch for them. It was kind of an early form of the current credit system, only it was more of an honor system where people kept each other in check. Of course, being an outsider, you would struggle to get credit.
This is why it was important for people who wanted to get ahead to settle down in a specific area and establish a well-known reputation. In the cities, a person would apply in person at a bank for credit. How the applicant was dressed, spoke, and even their body language factored greatly into the decision.
Bankers were notorious for scrutinizing every detail about a person who came in the doors and sat at their desk to ask for a loan. To say it was a method which was less than precise would be accurate. Not only was there the problem of people not having an established reputation with their neighbors as much as before, the sheer volume of credit applications had increased dramatically.
There was another challenge to the old system: newer bankruptcy laws in North America. Creditors were facing greater risk when extending credit, because the recipients of that money could possibly walk away without paying much of what they owed. Banks knew they needed to keep lending money to people wanting to establish businesses, but that the way they had been doing it needed to change dramatically.
One of the earliest examples of a standardized credit system sprung up in the United States in Called the Mercantile Agency, it was the dream of Lewis Tappan, a businessman who had taken significant financial damage in a depression back in That depression was the result of merchants extending too much credit to their customers, which backfired in a big way.
This system was open to all kinds of personal interpretations, with informants lacing their reports with their own bias towards certain groups in the population. Many of the reports from the Mercantile Agency, as well as rival the Bradstreet Company, proved to be difficult to interpret. Some credit applicants had conflicting information in their reports, thanks to multiple sources providing their completely subjective opinion about the person, leaving potential creditors wondering whether it was a good idea to extend a line of credit to them or not.
Starting in , the Bradstreet Company started working on an alphanumeric rating for different borrowers.
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