Credit ratings agencies started in the late 19th century in Brooklyn. For a while if you wanted to buy from a shop on credit, that was fine, the shopowner knew you. Then more people started moving in, and owners wouldn’t know who to trust.
The Sells brothers went around to all the shops, asked to look at their books, and compiled a list of people with simple categorizations: do they pay on time, do they pay cash, is there something you should talk to us about first? Then owners could have a copy of the book and look up an unknown person in that.
This sort of thing was also useful for e.g. banks and insurance companies, and there was competitive pressure to start including more and more detail. Ratings agencies were basically flying under the radar with this sort of thing. Then in the 60s Congress was discussing something else, “it would be bad if this led to...” and someone was like “you know the CRAs do that already right?” Congress apparently did not know this and started looking at the CRAs. One woman had been denied a job for being rated as, like, disagreeable and “neurotic or psychotic”; there was no citation for this, it’s not like it was a doctor’s diagnosis, just a thing that had been written down for some unclear reason. Congress doesn’t like this sort of thing and starts to impose rules on them.
Planet Money: Bad Credit Bureau
Credit ratings agencies started in the late 19th century in Brooklyn. For a while if you wanted to buy from a shop on credit, that was fine, the shopowner knew you. Then more people started moving in, and owners wouldn’t know who to trust.
The Sells brothers went around to all the shops, asked to look at their books, and compiled a list of people with simple categorizations: do they pay on time, do they pay cash, is there something you should talk to us about first? Then owners could have a copy of the book and look up an unknown person in that.
This sort of thing was also useful for e.g. banks and insurance companies, and there was competitive pressure to start including more and more detail. Ratings agencies were basically flying under the radar with this sort of thing. Then in the 60s Congress was discussing something else, “it would be bad if this led to...” and someone was like “you know the CRAs do that already right?” Congress apparently did not know this and started looking at the CRAs. One woman had been denied a job for being rated as, like, disagreeable and “neurotic or psychotic”; there was no citation for this, it’s not like it was a doctor’s diagnosis, just a thing that had been written down for some unclear reason. Congress doesn’t like this sort of thing and starts to impose rules on them.
The modern connection is to the Equifax hack.