Credit Reporting

Credit reporting is a mechanism for sharing information on borrowers. Typically, the reports focus on borrowers’ past behaviors, which lenders use to predict the likelihood of repayment. In the past, credit reporting relied on borrowers’ reputation—that is, hearsay about a borrower’s character and financial standing. However, in recent times, cheap computing power has enabled credit reporting agencies to aggregate borrowers’ payment records and apply algorithms to assess whether a borrower is worthy of credit. Today, borrowers’ payment records have largely replaced hearsay and letters of reference as the factors that determine creditworthiness. While credit reporting is typically associated with individuals, it is also compiled on corporations, thus potentially affecting a corporation’s reputation. This entry covers the historical context of credit reporting and the emergence of ...