Equifax and the Origins of Credit Reporting

Credit bureaus are something of an anomaly in the politico-economic world.  They regulate consumer spending - something you might expect from a government agency - yet are private, profit-seeking entities.   They hold people accountable for their past financial transgressions, and try to dictate the occurrence of future ones - yet they have no legitimate jurisdiction over the wallets of the people that they report on.

So if credit bureaus aren't government agencies, how did they come to be? And how did they gain so much influence?  The answer is quite simple - they grew organically from the American economic system.

   by  LendingMemo 

Of the three major national credit bureaus, Equifax, Experian, and Transunion, only Equifax can claim responsibility for the origination of the credit reporting system as we know it today.  It started in the late 1800's when a small time grocer, Cator Woolford, got the idea to record evidence of his customers’ creditworthiness.  When his records became sufficiently voluminous, he began selling them to other merchants in the local Retail Grocer’s Association - and so credit reporting was born.  Cator eventually teamed up with his attorney brother, Guy, and in 1899 the two moved to Atlanta and founded the Retail Credit Company (what would later become known as Equifax).  The business took off, and by the early 1900’s demand for consumer credit reporting had begun to spread beyond just the grocery industry.

But it isn't just the practice of credit reporting that you have Equifax to thank for.  The questionable ethics behind their information gathering practices were ultimately what prompted government regulation of the industry.

By the 1960’s, Retail Credit Company had amassed over 300 branches, and all sorts of consumer data with varying degrees of credibility.  Their credit reports allegedly factored in rumors about people’s marital lives, sex lives, and childhoods, and were distributed indiscriminately to pretty much anyone with a checkbook.  The company was even investigated for offering rewards to employees who managed to dig up the most negative information.  To put it bluntly, they were quickly becoming known as a slimy company.  In fact, it is popularly held that the main reason they changed their name to Equifax in 1975 was to clean up the image they had established under the moniker of Retail Credit Company.

It wasn't until they began to computerize their records in the late 60’s – in turn making them more widely available – that the government finally took action.  In 1970, Congress enacted the Fair Credit Reporting Act, which gave consumers certain rights with regards to what information could be shared about them through credit reports.  Still, even without exploiting details about consumers’ personal lives, Equifax and other credit bureaus have managed to become wildly profitable and influential corporations.  As many adult Americans know, a negative credit report can cripple your ability to progress in life.  Bad credit can impede your ability to enter into homeownership, car ownership, or even marriage, as some people advise that you look into your partner’s credit history before making a lifelong commitment to them.

So there you have it.  What started as a small-time business man stumbling into an untapped market, eventually evolved into a massive corporation with somewhere around 1.5 billion dollars in annual revenue, and an immense amount of influence on consumer behavior - a model of American capitalism.