Key Figures in the History of Credit Reporting and Credit Scoring
Lewis Tappan (1788-1873)
A New York silk merchant, prominent abolitionist, and founder in 1841 of the Mercantile Agency, the first organisation to systematically collect and sell information about the creditworthiness of businesses. Tappan built a network of local correspondents across the country who reported on the character, capital, and payment record of merchants in their area, and he sold subscriptions to that intelligence. The venture grew out of a practical problem created by the panic of 1837, when wholesalers extending credit at a distance had no reliable way to judge a buyer. The agency became R. G. Dun and Company and ultimately Dun and Bradstreet. Tappan established the underlying model of pooled, third-party repayment information that consumer credit bureaus later adopted wholesale.
Bill Fair (1922-1996) and Earl Isaac (1921-1983)
An engineer and a mathematician who met at the Stanford Research Institute and founded Fair, Isaac and Company in 1956 with a small amount of capital and a specific proposition: lending decisions made from a statistical model fitted to actual repayment outcomes would outperform decisions made case by case from human judgement. They mailed the proposition to dozens of large lenders and received very few replies. The company nonetheless built custom scorecards for individual creditors through the 1960s and 1970s, launched credit bureau risk scores in 1981, and introduced the first general-purpose FICO score in 1989. The 300 to 850 scale and the broad structure of factor weights they established remain the reference point for consumer credit scoring.
Senator William Proxmire (1915-2005)
A Democratic senator from Wisconsin who served from 1957 to 1989 and chaired the Senate Banking Committee, Proxmire was the driving legislative force behind much of the modern consumer credit statute book. He was the principal Senate sponsor of the Consumer Credit Protection Act of 1968, whose Title I is the Truth in Lending Act requiring standardised disclosure of the annual percentage rate and finance charge, and he introduced the bill that became the Fair Credit Reporting Act in 1970 after hearings exposed how much unverifiable material sat in consumer files. The premise running through his work was procedural rather than substantive: that credit decisions may be made on data, provided the subject can see the data and correct it.
Elizabeth Warren (born 1949)
A bankruptcy law scholar whose empirical research on why American families file for bankruptcy shaped how the subject is discussed. In a 2007 article in the journal Democracy, Warren argued that consumer financial products were subject to weaker safety regulation than consumer goods, and proposed a dedicated agency for financial products. That proposal became the Consumer Financial Protection Bureau, established under the Dodd-Frank Act of 2010; Warren set up the agency in an interim capacity before it opened in 2011. The CFPB supervises the nationwide credit bureaus, publishes the consumer complaint database, and holds rule-writing authority over the FCRA and ECOA. She was elected to the US Senate from Massachusetts in 2012.
The Three Nationwide Credit Bureaus
Equifax, Experian, and TransUnion are the three nationwide consumer reporting agencies whose files underpin almost all US consumer credit scoring. Equifax traces to the Retail Credit Company, founded in Atlanta in 1899 and renamed in 1975. TransUnion began in 1968 as the holding company of a railcar leasing business and entered credit reporting in 1969 by acquiring a Chicago credit bureau. Experian's consumer credit operations grew out of TRW Information Systems, which was sold and renamed in 1996. In 2006 the three jointly developed VantageScore, giving the market a scoring model calculated on a consistent methodology across all three files. Each bureau maintains its own file, which is why scores drawn from different bureaus can differ.