If you applied for a loan prior to 1970, your credit file was ordered from the local credit agency, a local company that kept a paper file with the person’s name on it. Back then, credit agencies would collect every bit of information they could about a person, including employment history, marital status, age, race, religion, testimonials, and any other information they could get their hands on. Information was also gleaned from newspaper clippings, police blotter notations, tax filings, statistics records and everywhere and every way to get information to put into a file. Hence the term, credit file. Someone would look at the file and determine if they would offer you credit. If there was a questionable accounting in the file, a simple phone call or visit to the office could clear the matter up or explain it away. With all that information at their fingertips, discrimination was not uncommon.

Ever heard of the Welcome Wagon? If you’re old not old enough to know what the welcome wagon was, the welcome wagon was typically women of the neighborhood that would welcome someone when they moved in. They would visit to bring a basket full of cakes and cookies. They would talk about local merchants, where the best place is to shop, the best gas station, church, butcher and grocer and ask you about where you used to live. They would also look around the house, looking at furniture, decorations, children, and everything else you could imagine.

The true reason for the old time ‘Welcome Wagon” was not to introduce you to the local merchants and those in the neighborhood. Their true job is reporting the information that they discovered from their visits. They would report everything that they saw and were told to the local credit an agency, which is how they originally gathered information. Since they would also learn where you came from it was easy to order your file and then to add what they had learned.

Reviewing all the information in an office and making lending decisions became an unmanageable task, especially with the automobile revolution, people began to move around and the “invention” of the suburb when the GI’s came home after World War II. They found it easy buying houses in the suburbs, moving out of the big cities because they were reluctant to return and wanted to raise their families far from what they had left behind when they left for war. Soon, with technological limitations even the largest credit agencies were restricted to only a few cities.

Experian, formally known as TRW, a defense contractor realizing the future importance of credit, absorbed the local credit agencies to monopolize the business, with the one important advent being the use of computers. And so the industry moved towards electronic files. The use of computers gave TRW, the advantage. As a defense contractor with the computer storage capabilities that no other company now had an advantage in housing all of the credit file information.

Equifax in the business of insurance reporting realized that the business model could be applied to credit. Soon Equifax was forced to lease computer storage from TRW in order to meet growing demand and survive. TRW eventually raised the cost so much that Equifax made the decision to engineer their own system and servers.

Trans Unions, a medical record reporting company also realized the future of credit, but was slow to enter into credit reporting. Trans Union, applied their business model and struggled with a failing system for years that earned them a reputation of misinformation and of being untrustworthy. Faced with many complaints and advertises they were ordered by The Federal Trade Commission, FTC, to dismantle the existing system and to come to the same technological level as Equifax and Experian or to get out of the business of credit reporting. Trans Union complied and gave away credit reports for 3 years to gain market value.

New technological advances allow credit bureaus to maintain files on millions of people. Now, instead of having a person review each file the computer does it. The entire credit reporting system is now automated and lenders make credit decisions in minutes compared to what once took days or weeks.

The Fair Credit Reporting Act (FCRA) 1987 was passed to add accountability to the credit reporting process. Unfortunately, the FCRA did not fix credit reporting system’s problems, nor did the Fair Accuracy and Credit Transactions Act (FACTA) 2004.

In addition to credit reporting we now have a mathematical model that instantaneously assigns a number known as a credit score.

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A positive up-to-date credit report is something you create not something that just happens