History of Credit Rating

When it all started

While people have been borrowing and lending money and other items for centuries, at just over 100 years old, credit reporting is relatively new. It all started when small retail merchants got together to share payback habits and other financial information about their customers. These merchant groups then evolved into small credit bureaus, which eventually grew into large and powerful organizations.

Credit bureaus have always been controversial as most people thought this information should be confidential. The bureaus were also using credit ratings and scores to deny people loans, credit cards, and other services and opportunities. This infuriated many people as they could be denied a loan, but weren’t allowed to view their own credit reports. Back in the 1960s, credit reports consisted only of negative financial information, and they also included information on a person’s lifestyle, such as their drinking habits and sexual orientation. It was also widely believed that these negative reports were affecting people when applying for jobs and insurance.

The public uproar led to a congressional inquiry, and in 1971, Congress passed a bill called the Fair Credit Reporting Act (FCRA). This act was brought in to establish fair information practices in order to protect privacy and promote accuracy in credit reporting. Consumers were now allowed to read, dispute and correct their credit reports. The credit bureaus also had to include positive information on a person’s financial history. This meant that people who had good credit ratings could actually benefit from the reports and have access to loans at better interest rates.

However, consumers didn’t have direct access to their credit ratings until 2001, after banks and other financial lending institutions pressured the bureaus into giving the reports to their customers. In 2003, President Bush signed an updated version of the FCRA, which required credit bureaus to provide consumers a copy of their credit rating for a fair and reasonable price. By 2006, all U.S. residents should be able to obtain a free copy of their credit report once every 12 months.

It’s a good idea to get a copy of your report as there could be mistakes in it that may prove costly to you in the future, or that may have already cost you extra money in your past dealings with financial institutions.