Who Is Behind Your Credit Score?

NEW YORK (MainStreet) — These days, consumers generally rely on Experian (Stock Quote: EXPE), Equifax (Stock Quote: EFX) and TransUnion to compile their credit, but it used to be that there were more than just three dominant credit bureaus sharing their information with lenders.

Credit bureaus themselves began popping up in the late 1800s when local merchants, looking to determine whether or not a loan was likely to be paid back in a timely fashion, started sharing information with one another about borrowers in their region. 

Equifax, for instance, was founded back in 1899 by brothers Cator and Guy Woolford, after Cator, a partner with a Chattanooga grocery store, was tasked with compiling a list of credit customers’ paying habits for the local Retail Grocer’s Association.

Over time, the Woolfords and those who had started up similar services started sharing and ultimately selling the compiled information in other cities, Maxine Sweet, a spokesperson from Experian, explains. Information was pooled, technology was developed and the big fish started eating the little fish until we ultimately ended up with the reporting system that we have today – which, it should be noted, spans beyond the three credit bureaus that consumers may be most familiar with.

“There are still some other bureaus and affiliates out there,” John Ulzheimer, president of consumer education for SmartCredit.com, points out. This includes CSC Services, which operates its own credit services division but also services Equifax customers in the Midwest, and Innovis Data Solutions, which was also affiliated with Equifax until it branched out on its own.

Still, the nature of the business and the ever-increasing amount and complexity of information about people’s financial habits has kept the number of credit bureaus limited to the current big players.

“Their model is very hard to replicate because, unless you buy one of them, it takes years to build a credit report database,” Ulzheimer explains. “And no lender will purchase a credit report from a new credit reporting agency if their data isn’t sufficient to make a good lending decision.”

More than one score

Experts point out that the real misconceptions about credit reporting  (and the problems that result) have less to do with the number of bureaus in operation and more to do the number of different scores that are available to both lenders and consumers.