Why does the credit repair industry exist? It’s actually pretty simple. As long as data is being collected for credit reports, there’s room for mistakes. And those mistakes can have a big impact. They could be the difference in someone qualifying for different credit lines or not.
So credit repair, consumer credit and credit bureaus—they’re all tied together. To understand why they’re so important, you might want to learn a bit more about the history of credit scores and repair. Luckily, we’ve compiled everything you need to know about the history of the credit repair industry.
The History of Consumer Credit Is Centuries Long
Debt isn’t anything new. In fact, it’s been around for at least a millennium. One anthropologist has traced the concept of credit systems back at least 5,000 years.
The concept of credit reporting may be almost as old. While creditors weren’t looking up someone’s history of debt and payments, many lenders did take risk-mitigation actions. For example, in early America, shopkeepers asked neighbors or others in the community to vouch for someone who wanted credit at their store.
It was a much more simplified version of the credit scoring and reporting system used today, but the goals were similar. Creditors want to know if a person is a good “bet.” In other words, they want to know if you’ll pay a loan back on time and if your history indicates that you’ll be a risk.
The History of the Credit Bureaus: A Brief Time Line
As population and credit needs grew, the ability to check if whether someone was a risk or not became complicated. In many cases, you couldn’t just ask neighbors for references. Companies began to create products and processes to solve this challenge. That process began the history of the credit bureaus. Here’s a quick timeline:
- 1950s: Local bureaus began to track credit-related behaviors of consumers in a single town or community. Typically, these organizations were cooperatives made up of area businesses. They simply reported on negative credit behaviors to warn each other. The agencies might also collect negative information from local newspapers.
- 1960s: Credit reporting bureaus “sponsored” by banks or other financial institutions didn’t share information outside of their networks. That limited the accuracy and completeness of any report with one of these organizations. It also impacted some people’s ability to get credit with new lenders.
- 1970s: The Fair Credit Reporting Act was passed. The industry stopped reporting events such as arrests or marriages. Instead, it began concentrating on creating accurate reporting specifically for credit. Over this decade several leaders emerged in the credit reporting space, including TransUnion and the bureau that would eventually become Experian.
- 1980s: Electronic storage supported increased accuracy and completeness of credit reports. Credit reporting agencies evolved from local or regional bureaus into national, integrated systems. It became possible for lenders to receive electronic information about a person’s credit quickly in the form of a fax.
- 1990s and beyond: The internet made credit reporting even faster and provided increased access to consumer credit reports and scores.
The History of the Credit Repair Industry
As soon as modern credit reporting was created, the pressure to have a good financial record and credit history increased. And that meant it was more important than ever for credit reports to be correct.
Financial Mistakes Didn’t Have the Same Weight
Historically, if you made a financial mistake, it might not have far-reaching consequences. Credit reporting, even through much of the 20th century, was localized. If you moved, you might reset your credit reputation.
Plus, banks and lenders weren’t tied to credit scores like they are now. Today, financial institutions have rules and policies to comply with different regulations and to protect their bottom lines. In the past, bankers were more willing to work with someone with a poor credit history, choosing to lend them money based on their knowledge of a situation.
Even so, many people didn’t know what was in their credit report. And when they did get a look at it, they sometimes found the report was mistaken. It’s not surprising. Even today, the Federal Trade Commission notes that 20% of Americans have an error on their report.
Enter the Credit Repair Industry
Today, you can find information on how to repair your credit online and access numerous tools for doing so via the internet. But this wasn’t always the case. Credit repair companies began to pop up to help consumers get errors on their credit reports corrected. Some companies also began offering consumer financial education to teach how to manage credit.
The Credit Repair Industry Today
The credit repair industry is alive—and thriving—today. It’s evolved over the last few decades, and many people misunderstand what these organizations really do. If your credit report has an error, a reputable credit repair agency can provide valuable tools and assistance to get the problem corrected.
Not sure how to repair your credit? Let ExtraCredit help. Use Restore It—one of ExtraCredit’s features—to connect to some of the best credit repair leaders around. They can take a look at your credit history, and help you tackle any inaccurate or unfair negative items you may have on your credit report.