Overview of Credit Reporting Systems

Abstract

There are several different types of information intermediaries in financial markets such as rating agencies, commercial reporting agencies or public credit registries. Standard & Poor’s, Fitch or Moody’s are rating agencies in capital markets that evaluate large corporate borrowers or even countries (see Estrella et al. 2000, Hickman 1958, Sylla 2002). In most cases, these agencies rely on publicly available information that is evaluated quantitatively and qualitatively. The historical research on these agencies is more advanced than that on consumer credit reporting agencies. For this matter, these types of information intermediaries are excluded from the following discussion. Another type of registry is the commercial reporting agency that collects information on firms. Madison (1974) identifies the English Guardians Society for the Protection of Trade against Swindlers and Sharpers of 1776 as predecessor of such agencies. The Mercantile Agency, a commercial reporting firm, opened its doors in 1841 in New York (Madison 1974: 164). Before this kind of service arrived, gossip among bankers as well as relationship lending prevailed. These companies are also excluded from this analysis as there are already many accounts on these types of intermediaries (Kallberg and Udell 2003, Madison 1974, Norris 1978, and Olegario 2003). There are three different types of credit reporting systems identifiable:

• Dual systems: public credit register and private credit bureaus;

• Private systems: only private credit bureaus; and

• Public systems: only a public register.