In the most basic terms, a credit bureau is a clearinghouse of information on consumers. Every time you fill out a credit application, every time you make (or miss) a payment, every time you do just about anything that has to do with your finances, the credit bureaus are there, even if you aren't aware of it. The businesses that extend you credit, including credit card companies, lenders, mortgage brokers and others look to the information provided by the credit bureaus to help them make the decisions about who to give credit to, and who to avoid. In short, the information provided by the credit bureaus helps them make good business decisions and protect their assets. But how did this whole thing get started, and why is it important to know?
How the Credit Industry Began
Each of the three major credit bureaus, Equifax, Experian and TransUnion, manage approximately 190 million credit files.
The basic concept of credit bureaus can be traced back as early as the 1860's, and functioned primarily to provide local merchants with a way to keep tabs on the people who traded and did business in their immediate area. The 'Credit Bureau' essentially consisted of a list of individuals who were poor credit risks. Prior to the use of a list, merchants extended only a very small amount of credit, and that was based only on the merchant's personal knowledge.
After World War I, however, the industry really began to take shape. The population became more mobile, and several advances in technology and electronic data helped the progress. With a mobile population came a broader base of merchants, and the credit industry stepped in to provide information on consumers that could be used to determine whether or not to grant credit. Information provided by the early industry included employment records, information from landlords, data in public records, and sometime direct investigations of individuals.
Consumer Credit Bureaus Today
In 1906, several of these bureaus formed the Associated Credit Bureaus, Inc. This organization provides services like fraud prevention, risk management, check verification and collections to the credit bureaus. The Associated Credit Bureaus, Inc. represents the credit bureaus before the Federal Trade Commission and state and federal legislators, protecting their interests.
Although it may seem a bit Orwellian, the bureaus are actually pretty important. Recent estimates indicate that there are somewhere around one billion credit cards in use in the U.S., and an average of two billion pieces of data entered monthly, in order for any lender, merchant or business to make a reasonable decision about your credit-worthiness, someone has to manage that data. In fact, each of the three major credit bureaus, Equifax, Experian and TransUnion, manage approximately 190 million credit files. It's a pretty big job, and they're pretty serious about it. However, as with any job of that scope, mistakes are bound to happen.
The Three Major Credit Bureaus
Although there are many smaller credit bureaus, the vast majority of lenders today use one or more of the "Big Three" credit bureaus.
The oldest of the three major credit bureaus was founded in 1899 as Retail Credit Company. The company grew very quickly, by the 1920's they had offices throughout the US and Canada and by the early 1960's they held information on millions of Americans. Retail Credit Company's willingness to distribute their extensive information to just about anyone, as well as their move to computerize their records led directly to the Federal Fair Credit Reporting Act of 1970. In 1975 they changed their name to Equifax, allegedly to improve their image.
Created in 1968 by Union Tank Car as their holding company, in 1969 TransUnion moved into the credit industry and began acquiring smaller regional and major city credit bureaus, which typically had existing contracts with local retailers. The only way to get a contract with these local retailers was to buy the credit company that owned the contract. TransUnion now has over 250 offices in the U.S. and 24 other countries around the world.
Founded in 1980 in Nottingham, England as CCN Systems, Experian moved into the U.S. credit business in 1996 with it's acquisition of TRW Information Systems. Experian has continued to grow, and now has operations in 36 countries worldwide.
Recent Changes and Savvy Consumers
The Internet has presented some challenges to the three major bureaus, as well as provided a wealth of new opportunities. Although the bureaus have largely been cautious of moving their operations online, the demand from increasingly savvy consumers to know what their credit files contain has prompted each of the three bureaus to explore several online services, such as viewing your report online, and enabling online disputing of inaccurate items.