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How did credit reports get started? By: Michael Malloy Credit River, MN (WiredPRNews.com) — In the very early days, when people bought things on credit at the general store, the store clerk wrote the purchase amount on a piece of paper that was then put into a “cuff”, or a paper tube that they wore on their wrist. Eventually, someone had the idea of collecting all of the information from these clerks’ cuffs and putting it together for other merchants to refer to before granting credit to customers. The problem was that they only collected the bad information. The data also included character references, employment information, insurance information, and even driving records. There was no verification that the information was correct, customers had no way of knowing who was reporting on them or where it was coming from. The only groups that could access the information were lenders and merchants. Collectively, they were known as mutual protection societies and roundtables, and their scope was limited geographically. This soon proved to be an inefficient way for businesses to protect themselves from bad debt. In the 1830s, the first third-party credit reporting agencies were established. They were one of the first industries that were national in scope, and they functioned much like modern-day franchises with networks of offices across the country. They differed from the traditional mutual protection societies in that they allowed anyone to access the credit information - for a price. These branches paid a percentage of their profits to their credit reporting agency (CRA) central office in exchange for credit information from other locations. When the typewriter and carbon paper were developed in the 1870s, greater efficiencies in reporting were discovered. The information that was accumulated was more widely available, more accurate, and covered a much larger geographical area. These new CRA’s had to deal effectively with four groups: their subscribers, the consumers and businesses about whom they reported, their branch office correspondents, and the general public. Learning to work effectively with each group while keeping them all happy, as well as competing with other CRAs, helped form the major agencies that we know today. Information that makes up your credit report includes: Personal identifying information - This includes your name, address (current and previous), social security number, telephone number, birth date, your current and previous employers. Your spouse’s name may be included as well (depending on the version of the report). Credit history - This section includes your bill paying history with banks, retail stores, finance companies, mortgage companies, and others who have granted you credit. Public records - Information that might indicate your credit worthiness, such as tax liens, court judgments and bankruptcies. This information is readily available from public authorities such as state and local governments. Report inquiries - This section includes all credit granters that were authorized to view and access your credit report. In addition, lists of companies that have received your name and address in order to offer you credit are included. Dispute statements - The report may also include any statements you’ve made disputing information in your credit history. There are different versions of credit reports available, depending upon the requestor. The consumer version includes all of the above information, as well as a listing of all inquiries for the report. The business version includes all of the above information, but only the inquiries made by companies with a “permissible purpose” - this usually means someone with whom you have initiated business. You’ve probably also heard the term credit score. Don’t confuse your credit score with your credit report. Credit scores are based on formulas that use the information in your report, but they are not a part of your report. The Fair Isaac Corporation (now FICO) created a proprietary scoring formula that most creditors use, although there are other scoring methods used by other agencies for various purposes. The FICO score essentially boils down all of the information in your credit report to a single three-digit number. This gives creditors an easier way of making decisions about your creditworthiness. The score can range from 300 to 850, with the higher number indicating a lower credit risk. According to myFICO.com, 90% of the largest banks in today’s market use consumers’ FICO scores when making decisions to lend credit. Therefore, it is important for you to maintain your credit to the best of your ability because it can have a big impact on your financial future. Written by: Michael Malloy ( The Credit Physician ) This author has been researching the anatomy of the credit report for years, giving readers the information to empower them to take control of there credit reports. www.creditphysician.net md@creditphysician.net
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