Why there are three credit reporting companies

Dear OJO,

History is primarily responsible for there being three credit reporting companies.

Credit reporting first appeared more than 100 years ago. Then, individuals went from merchant to merchant in a town or city taking notes about how individuals repaid their debts. The merchants could than ask for credit references based on the notes in the local credit bureau files.

Eventually, credit reporting expanded, automated, and consolidated into three regional credit reporting companies. Experian, then TRW, evolved in the west and is now based in Costa Mesa, California. Trans Union, based in Chicago, grew in the central United States, and Equifax, in Atlanta, dominated the south and east.

With the advent of the computer, the three regional credit reporting companies all gained national scope and became competitors. While doing basically the same things, there are differences in the way each functions, the ancillary services they provide and how they work with customers, both business clients, like banks, and individual consumers.

An unlikely but relevant comparison is to the big three auto manufacturers – Chrysler, Ford and General Motors. All three produce cars and trucks, which are essentially the same in function. However, there are differences in the vehicles each company produces and in the way they interact with their customers that cause fleet operators and individual consumers to prefer one brand over the others.

While having several companies that “do the same thing,” many economic scholars argue that competition is better than a single-company monopoly because it fosters innovation in products and services and promotes lower costs and better customer service. I tend to agree.

Thanks for asking.