A credit bureau is a clearinghouse of information on consumers. When you fill out a credit application, make (or miss) a payment, or do just about anything that has to do with your finances, the credit bureaus are there. The businesses that extend you credit, including credit card companies, lenders, mortgage brokers and others look to the information provided by the credit bureaus to help them make the decisions about who to give credit to, and who to avoid. The information provided by the credit bureaus helps them make good business decisions and protect their assets.

How the Credit Industry Began

The concept of credit bureaus can be traced back to the 1860's. These first bureaus existed to provide local merchants with a way to keep tabs on the people who traded and did business in their immediate area. The 'Credit Bureau' essentially consisted of a list of individuals who were a high credit risk. Prior to the use of credit bureaus, merchants extended only a very small amount of credit, and decisions about who to extend credit to were based solely on the merchant's personal knowledge.

After World War I, however, the credit industry really began to take shape. The population became more mobile, and with a mobile population came a broader base of merchants. The credit industry stepped in to provide information on consumers that could be used to determine whether or not to grant credit. Information provided by the early industry included employment records, information from landlords, data in public records, and sometime direct investigations of individuals.

Consumer Credit Bureaus of Today

In 1906, several of these bureaus formed the Associated Credit Bureaus, Inc. This organization provided services like fraud prevention, risk management, check verification and collections to the credit bureaus. The Associated Credit Bureaus, Inc. represented the credit bureaus before the Federal Trade Commission and state and federal legislators.

Although credit bureaus may seem like Big Brother, credit bureaus are actually pretty important. Estimates indicate that there are approximately one billion credit cards in use in the U.S., and an average of two billion pieces of data entered monthly. In order for any lender to make reasonable decisions about your credit-worthiness, someone has to manage that data. In fact, each of the three major credit bureaus manage approximately 190 million credit files.

The Three Major Credit Bureaus

Equifax - The oldest of the three major credit bureaus, Equifax was founded in 1899 as Retail Credit Company. The company grew very quickly and by the 1920's had offices throughout the U.S. and Canada. By the early 1960's they held information on millions of Americans. Retail Credit Company's willingness to distribute their extensive information to just about anyone, as well as their move to computerize their records led directly to the Federal Fair Credit Reporting Act of 1970. In 1975 they changed their name to Equifax, allegedly to improve their image.

TransUnion - Created in 1968 by Union Tank Car as their holding company, in 1969 TransUnion moved into the credit industry and began acquiring smaller regional and major city credit bureaus, which typically had existing contracts with local retailers. The only way to get a contract with these local retailers was to buy the credit company that owned the contract. TransUnion now has over 250 offices in the U.S. and 24 other countries around the world.

Experian - Founded in 1980 in Nottingham, England as CCN Systems, Experian moved into the U.S. credit business in 1996 with it's acquisition of TRW Information Systems. Experian has continued to grow, and now has operations in 36 countries worldwide.