One question I invariably get asked daily is “how will bankruptcy effect my credit score?” Credit scores help determine whether we qualify for mortgages and loans, and what kind of interest rate we will have to pay. Have you ever wondered how this whole credit reporting business got started? I recently listened to a Planet Money podcast that went through the history of the bureaus after the Equifax hack last year, and it was very interesting.
How Did Credit Bureaus Get Started?
Keeping Record by Hand
Back in the 1800s, if you wanted to buy something like groceries on a store credit, the store owner would write down your purchase and keep and tally of what you owed. Eventually, stores began to collect all the information on their patrons, and put together a book that they could reference to see if they should be willing to let the patron buy things on credit. The book included references, employment information, and whether debts were paid on time.
Collecting More Than Just Debt Information
Eventually, credit bureaus were established throughout the country. As time passed the consumer reports kept growing, and other entities besides lenders were accessing this information- employers and insurance companies also found the data collected on consumers to be helpful. The bureaus were much more local than they are now, and besides keeping up with who paid their debts on time also collected unverified, “gossipy” information on consumers.
In the late 1960s, Congress caught on to what was happening with the credit bureaus, and after a series of hearings passed the Fair Credit Reporting Act in 1970, one of the foundations of consumer rights laws in the United States. This law and its later amendments effectively stopped credit bureaus from collecting rumors and hearsay. It set out rules about who could pull your credit report and when, and how errors should be fixed.
The End of Local Credit Bureaus
With the rise of computers and other technologies, it became much easier for data to be collected and spread, which meant that local credit bureaus weren’t needed. They eventually consolidated to the big three we have today- Transunion, Equifax and Experian.
If you are having trouble with inaccuracies in your credit report, or if your credit score is low because of your debt load, please contact one of our offices today to set up a consultation with one of our attorneys.
Kathryn Davis is an attorney at the Bond & Botes Law Offices in Huntsville and Decatur, Alabama. She holds a Bachelor of Arts from Auburn University, and a Juris Doctorate from Samford University, Cumberland School of Law. She is passionate about utilizing the bankruptcy process to help clients navigate through what is usually some of the lowest points in their lives. Read her full bio here.