KELLY MCEVERS, HOST:
The big three credit bureaus - Experian, Trans Union and Equifax - watch and collect just about every detail of our financial lives. We got a pretty chilling reminder of that last month when Equifax announced a massive hack. Robert Smith and Kenny Malone of our Planet Money podcast set out to understand how this multibillion-dollar industry got started. Robert starts off.
ROBERT SMITH, BYLINE: One of the very first credit reports ever is at The New York Public Library.
KENNY MALONE, BYLINE: Hey, Nora.
NORA LYONS: Hi.
MALONE: This is Robert.
LYONS: Nice to meet you.
SMITH: Thanks.
MALONE: Show us the way to the secret documents.
Nora Lyons shows us to this, like, little blue booklet from 1874.
SMITH: It looks like a phonebook.
MALONE: There's a list in here of about 4,000 people from Brooklyn from way back in the day. And next to each name is an address and then some old-timey jobs - druggists and tons of grocers.
SMITH: There's a sailor of some sort.
MALONE: What's his name? Oh, it's just Captain Collins.
SMITH: Captain Collins always pays his debts, gets an A.
MALONE: Does it say that?
SMITH: He does get an A.
MALONE: And sure enough, next to each name is a letter grade.
SMITH: That A meant that Captain Collins pays his debts right away. A B would have meant that he always pays cash. And a C would mean that he sometimes misses his payments.
MALONE: And then there could have also been an ampersand, which meant either we don't know how Captain Collins' credit was...
JOSH LAUER: Or that the information is maybe a little bit damning and you should come to our office and ask us about that.
SMITH: This is Josh Lauer. We learned about that very old credit report from his book, "Creditworthy."
MALONE: And Lauer explained to us that in the 1800s, there were no car loans or credit cards. What credit meant back then was a tab at your town store.
SMITH: So if I went into a grocery store back then and said, hey, I need some butter or some cigars but, you know, I'm a little short of money this month...
MALONE: The grocer might say, oh, I know this guy. I know his family. He's good for this.
LAUER: Take your butter. Take your cigars. I know you'll come back next week and you'll settle and...
SMITH: And good day, sir.
LAUER: And good day.
MALONE: And that system worked for a long time. But after the Civil War, people started moving around, heading to cities. And suddenly you had total strangers showing up at the grocery store, looking to buy things on credit.
SMITH: Enter two brothers named Selss.
LAUER: Herman and Conrad Selss. And there isn't a lot of evidence that survives about who they are.
MALONE: But that book at the library, Josh Lauer's pretty certain it comes from the Selss brothers.
SMITH: Because we know that in 1869 in Brooklyn, they saw a business opportunity. They started going around to the butchers and the druggists and all those grocers...
LAUER: And saying, we're organizing a list of all customers in our neighborhood.
SMITH: So it'd be great, dear cobbler, if you let me look at your books and find out who pays cash, who uses credit and who pays back that credit.
MALONE: And then that way if a stranger named, say, Robert Smith...
SMITH: Unlikely.
MALONE: ...Came into your store, you could just pull out the Selss book.
SMITH: Oh, yeah, look right here - Robert Smith, plumber, B-A. Always pay in cash. Always pay on time.
MALONE: Robert Smith.
SMITH: Smith motto.
MALONE: Is that true?
SMITH: That's - no. No.
The Selss' idea was a huge success. Over the next century, thousands of credit bureaus were established. They collected more and more information. Eventually computers allowed the industry to consolidate into the big three credit bureaus we see today.
MALONE: And according to industry lore, during that great consolidation the Selss brothers credit bureau was bought up by a place called the Retail Credit Company, which would eventually change its name to Equifax.
SMITH: So we should note it says confidential on here.
MALONE: Yeah, which means sitting here, reading these names and these ratings, this is the equivalent of an 1874 Equifax hack.
SMITH: (Laughter) We're hacking 18-something-something Brooklyn.
MALONE: And leaking everybody's credit rating.
SMITH: (Laughter).
MALONE: Kenny Malone.
SMITH: And Robert Smith, NPR News. Transcript provided by NPR, Copyright NPR.
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