How CARFAX Works

There are many ways to pass off a dud car onto an unsuspecting buyer, and monkeying around with the odometer is one of them. By removing the odometer's casing and physically rolling back numbered wheels, a car can appear to have plenty of good miles left in it, instead of plenty of hard miles hanging on it.

One Missouri-based computer analyst believed odometer fraud could be reduced or eradicated by collecting mileage readings from state inspection records, and that he could make a living doing so.

In 1984, Edwin Barnett III started CARFAX and soon began selling reports based on 10,000 vehicle records he obtained. In order to grow, Barnett knew his company would have to have far greater access to vehicle records. In nine years' time, CARFAX was receiving automobile records from all 50 states. By the time the company was 10 years old, CARFAX was maintaining a database with more than 100 million records. That's pretty impressive, but 10 years after that, CARFAX was maintaining around 3 billion records.

Though CARFAX is now headquartered in northern Virginia, its original headquarters in Columbia, Mo., is now home to the expansive and ever-growing CARFAX data center that today keeps up with an astounding 6 billion records.

The U.S. government seems to recognize the value of CARFAX. During the "cash for clunkers" program of 2009 (officially known as the car allowance rebates system, or CARS), the National Highway Traffic Safety Administration provided CARFAX (and Experian Automotive) vehicle identification numbers (VIN) of the 700,000 clunkers that consumers turned in at dealerships. By law, these cars must have their engines taken out and destroyed, and the rest of the metal scrapped. The government's partnership with vehicle history-reporting companies guaranteed that records would be available to the public so that no scrapped cars were re-diverted back to the public for sale.

Next, we'll take a crash course on the information found in CARFAX reports.