Stan,
Credit reports have a lot to do with being awarded a license for contractors. A good credit score shows you are a responsible person and have conducted yourself properly. You wouldn't want a contractor who doesn't pay for materials and then the customer gets a lien on their house do you?
Many if not most states have laws concerning contractors. Here in Michigan a tile setter can either have a "Tile & Marble" license in the category of "Maintenance & Alterations" (M&A) or a "Builders" license.
A Builders license allows you to engage in most trades with the exception of electrical, plumbing and HVAC. Obviously someone with a builders license doesn't have to know much about any trade although most know at least one or 2 trades.
A M&A contractor is only supposed to work in their specialty trade. Here, both the person & entity should be licensed. Even salespeople are supposed to be licensed, yes tile sales people too.
Licensing is NOT a $$$ generating scheme of the state or local governments, it's supposed to protect and when necessary punish those who cheat or do not perform their work as promised. A licensed contractor can have their license revoked and they can be fined. If you hire an un-licensed contractor and you get cheated or?, you are on your own, good luck with that.

Those of you that should be licensed but are not are probably thinking, "I don't need no stinkin license, a license isn't going to make me a better tileman."
Well, OK, you're right about that. It will make you legitimate kinda like a driver's license, practicing law or medicine, to different degrees of course. The license can be taken away and you can be punished if you screw up, that is the whole point people give some of us many thousands of $$$ and put their faith in us.
We won't get into some of the other illegal activities unlicensed contractors are more likely NOT to do, like keeping good books, accurate books.
Jaz
[Edited by JazMan on Mon, Jun 29, 2009 at 11:45 pm EST]