Credit Reporting: How It All Began

Today’s economy relies on the constant exchange of funds within the financial system and the increased buying power that credit provides. With credit, consumers can manage their cash flow, make purchases they may not otherwise be able to make, and in so doing, contribute to the economy’s strength. However, the modern credit system would not be possible without the steady flow of borrower information.

The average person usually doesn’t have the means to buy a home, buy a car, or start a college education without a little financial support. But before a lending institution will extend credit or approve a loan, the lender must have certain essential information in order to make a prudent lending decision.

Simply stated, a lender must be able evaluate the likelihood that a borrower will repay the borrowed amount as agreed. Businesses that grant credit rely on tools like credit reports, credit scores, and other information solutions to assess the creditworthiness of a potential borrower.

Credit reporting was born more than 100 ago, when small retail merchants banded together to trade financial information about their customers. The merchant associations then turned into small credit bureaus, which later consolidated into larger ones with the advent of computerization.

By the 1960s, controversy surfaced over the CRAs as credit reports were being used to deny services and opportunities, and individuals had no right to see what was in their files. In addition, CRAs back then reported only negative financial information as well as "lifestyle" information culled from newspapers and other sources -- information such as sexual orientation, drinking habits, and cleanliness.
The controversy led to a congressional inquiry, and in 1971, Congress passed the Fair Credit Reporting Act (FCRA), which established a framework for fair information practices to protect privacy and promote accuracy in credit reporting. Consumers gained the right to view, dispute and correct their records, and CRAs began to supplement the often-bleak reports with information on consumers' positive financial history.

However, it wasn't until 2001 that consumers gained direct access to their credit scores. Earlier that year, Consumer Reports had documented the problem of credit scores being off limits to consumers in an article entitled "New Assault on Your Credit Rating." The article, combined with growing pressures from lending institutions wanting to disclose scores to consumers, finally opened credit score information to individuals. An updated version of the FCRA, signed into law by President George W. Bush in December 2003, requires CRAs to provide consumers a copy of their credit score at a "fair and reasonable" fee.

Lewis Tappan... A devout Christian businessman, Lewis Tappan created the first viable credit reporting service in America, changing forever how business was done.

Mercantile Career... He was born in Northampton, Massachusetts in 1788 and became a merchant, first in Philadelphia, then in Boston. A strict Calvinist, he insisted on cash transactions, since the Bible warned against lending money and charging interest. Lewis made money then lost it, going bankrupt from poorly timed investments in woolen and cotton mills. In 1827, he started over, joining his successful brother, Arthur, in New York's silk trade.

Spying on Sinners... The brothers were evangelically religious and staunch moralists, contributing profits from their business to moral crusades. They gave away Bibles, blew the whistle on gaming houses, and even entered New York's brothels, "to pluck fallen women from roaring lions who seek to devour them." They connected with other activist Christians who shared reports on immoral activities and aggressively sought to enforce Christian behavior.

AbolitionismIn... 1830, the Tappans met a young abolitionist agitator named William Lloyd Garrison, whom Arthur offered financial support. Soon, the brothers were part of a nationwide network opposing slavery. Their new crusade made them the hated targets of many merchants and white laborers, who believed ending slavery would destroy the cotton export business and allow freed slaves to take scarce jobs. By 1834, mobs were storming Lewis' home and Arthur's store. Faced with a boycott and lost business, the Tappans were forced to extend credit for the first time. Then, in the panic of 1837, the business was wiped out. By 1839, Arthur had repaid all his creditors and the business was shakily back on its feet.

Credit Reporting... Lewis hated credit, but he realized offering it to customers was becoming the only way to make a sale. How could a merchant gauge his customer's trustworthiness, and assess whether he'd ever get paid? Tappan began keeping files on customers, reviewing their characters and their credit-worthiness. Pretty soon, other merchants were turning to Tappan for advice. Exploiting his abolitionist connections across the country, Tappan created a network of correspondents to offer up-to-date and comprehensive credit information about people in their communities.

Tappan's credit information business enlisted local correspondents including a young Illinois lawyer, Abraham Lincoln, and a Midwestern storekeeper, Ulysses S. Grant. (Two other future presidents, Grover Cleveland and William McKinley, would also find work as correspondents.)

Booming Business... Some saw the files kept by Tappan's Mercantile Agency, founded in 1841, as an invasion of privacy. But by 1844 the business had 280 clients. It opened branch offices in Boston, Philadelphia, and Baltimore.

Dun & Bradstreet... Tappan transferred the running of the agency to his chief clerk, Benjamin Douglass, in 1849. By 1851, 2000 full-time correspondents were reporting from across the nation. Douglass would transfer the company to his brother-in-law, Robert Graham Dun, in 1858, and in 1933 R.G. Dun & Company would merge with its main rival, Bradstreet, forming Dun & Bradstreet, the largest credit reporting entity in the world. As for Tappan, he retired wealthy to spend all his time opposing slavery. He died in 1873, a decade after the Emancipation Proclamation, in Brooklyn, New York.

Source: PBS - http://www.pbs.org/wgbh/theymadeamerica/whomade/tappan_hi.html

History of the Merged Credit Report

Equifax®, Experian®, and TransUnion collect and store credit data on almost every adult consumer who has ever had some type of credit obligation. When a potential lender or creditor requests a consumer’s credit history, the information that has been reported about the consumer is packaged into a credit report.

Because each bureau is slightly more prominent in each part of the country, and due to the fact the lenders are not required to report back to all three bureaus, one bureau may hold more or less comprehensive or up-to-date information on a given consumer’s credit file.

Each bureau also has its own report format and uses its own classifications and codes to present data. This makes it difficult to identify any inconsistencies when cross-referencing each bureau’s credit report.

Merged credit reports help solve the problem of data discrepancies between bureaus, in addition to streamlining analysis.

In 1989, First American CREDCO, a credit reporting agency and leading provider of specialized credit reports, raised the standards of quality and service by introducing the Instant Merge® credit report. The first merged credit report of its kind, Instant Merge offered a solution to the problem of data discrepancies between the three national credit bureaus: Equifax (formerly CBI), Experian, and TransUnion. Instant Merge uses CREDCO’s patented Merge Logic to create a more streamlined and comprehensive credit report. The proprietary Merge Logic system receives raw data from the national credit bureaus in real-time and applies a progressive series of comparisons to eliminate duplicate data. The result is an easy-to-read report containing the most accurate information available on the consumer. This, in turn, allows lenders to make fair and balanced lending decisions. Today, Instant Merge is the most popular merged credit report across all industries.

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