Fair Credit Reporting Act, or the FCRA, is a federal statute that seeks to ensure that the information in consumer credit bureau files is reliable, equitable, and confidential. The law governs how credit reporting agencies can compile, view, use, and distribute the information they collect in your consumer reports. Under the FCRA, all consumers have the right to view the information and dispute inaccurate information in their credit file. As a consumer, you need to be aware of your rights to stop firms in the credit reporting industry from taking advantage of you.
The legislation seeks to protect consumers from misinformation that is used against them. This includes some detailed guidance on the procedures used by credit reporting agencies to obtain and validate information and outlines criteria for the disclosure of information.
What Are Credit Reporting Agencies?
Credit reporting agencies (CRA) are responsible for the collection, processing, and archival of consumer credit information. More than 200 million Americans’ information is with the CRAs. They offer information to help companies make loans or grant credit decisions.
The agencies gather information about the use of credit by every consumer and their bill payment records. The data is sourced from “Information Suppliers,” or any company that extends credit to clients. Information is also taken from public records, such as court rulings and bankruptcy filings. Information providers send consumer credit information to credit reporting agencies electronically on a continuous basis, so credit reports may change almost daily, depending on the extent of a consumer’s activity.
The CRAs enter the data they receive into their series of algorithms to produce a score that predicts the creditworthiness of a customer.
CRAs do not determine if consumers get a loan. That decision is made by credit-extending banks, credit unions, mortgage firms, or card companies. The CRA information is used to determine the interest rate and prerequisites for a loan.
What Is the Fair Credit Reporting Act’s Purpose?
The FCRA, passed in 1970, helps consumers understand what actions they can take regarding their credit report information. Consumer information is gathered all the time: Besides the three major consumer credit bureaus (Experian, TransUnion, and Equifax), there are other organizations that can collect and use your information. For example, banks or credit unions may use your credit history to determine whether you are to be approved for a loan.
Why does it matter how your credit details are used? The issuing company reviews your credit history to determine your creditworthiness if you apply for a credit card, a mortgage loan, a car loan, or some other form of credit. The conditions you’re offered for credit (such as a loan) could be partly dependent on your credit score and credit report records.
Your credit background influences more than just the ability to receive loans or the annual percentage rate (APR) on the credit cards. For example, prospective landlords might review your credit report to see how creditworthy you are when it comes to determining whether they can trust you to pay your rent on time.
Employers in some states can review your credit report for hiring purposes. Depending on the state, insurance companies may also check your credit to determine whether to offer you coverage.
How does the FCRA assist consumers?
The FCRA helps protect consumers by regulating how information can be used and accessed in the Consumer Report. Here is an overview of the critical aspects of the legislation.
- The FCRA grants you the right to be told if information in your file is used against you to reject your credit, job, or insurance application.
- The FCRA gives you the right to request and access all information about you that a consumer reporting agency has (this is known as “file disclosure”). By going to AnnualCreditReport.com, you will get one free file disclosure from each national credit bureau every 12 months.
- The FCRA will grant you access to your credit report but will limit access for others. Access is usually restricted to those with a “permissible purpose,” such as landlords, investors, and insurance companies. If an employer wants access to your credit report, you have to give written consent; employers also have to meet other requirements, and not all states allow employers to pull credit reports as part of the background check for an applicant.
- When you encounter details on your credit report that you believe to be incorrect or incomplete, you have the right to dispute it. The credit bureau will then contact the data source to confirm the accuracy of the information. When it is not, it must either be corrected by the credit bureau or removed within a specified period of time. Accurate negative information, such as late payments and bankruptcies, will be deleted after a given period of time.
- The FCRA gives you the option of opting out of the prescreened credit offers you receive.
- Finally, the FCRA gives you the right to put a security freeze on your credit report, ensuring that potential lenders will not be able to check your credit report without you first lifting the freeze or providing a one-time PIN to the particular lender to access your credit report.
Keep in mind that certain states have their own laws that regulate consumer credit reporting in addition to the FCRA laws.
Summary of consumer rights under the Fair Credit Reporting Act
The Federal Fair Credit Reporting Act (FCRA) advocates the quality, fairness, and confidentiality of details in consumer reporting agencies’ records. There are various types of consumer reporting agencies, including specialty agencies (such as agencies that sell check-writing history information, medical records, and records of rental history) and credit bureaus. Here’s a brief summary of your significant FCRA rights-
You have to be told if data from your file was used against you. Anyone who uses a credit file or other sort of consumer report to refuse your application for credit, insurance, or jobs, or to take any unfavorable action against you, must notify you and send you the name, address and telephone number of the agency which provided the information.
You are entitled to know what’s in your file. You can ask for and receive all the information about you in a consumer reporting agency’s data (your “file disclosure”). You will be required to provide appropriate identification, which may or may not include your Social Security number. The disclosure will, in many cases, be free. You have the right to free file disclosure, if:
- A person has taken an unfavorable action against you because of information found in your credit report;
- You have been subjected to identity theft and put a fraud alert in your file;
- Your file contains incorrect information resulting from the fraud;
- You are on public aid;
- You are unemployed but expect to file a job application within 60 days.
Furthermore, all customers are entitled to one free disclosure every 12 months upon request from each national credit bureau and nationwide specialty consumer reporting agency. For more information, please see www.consumerfinance.gov/learnmore.
You have the right to request for a credit score. Credit scores are statistical summaries of your creditworthiness, based on credit bureau data. You may ask for a credit score from a consumer reporting agency that creates scores or distributes scores used in residential real estate loans, but you will have to pay for it. In certain mortgage transactions, the mortgage lender can give you credit score details for free.
You are entitled to dispute information that is incomplete or incorrect. If you identify inaccurate or incomplete information in your file and notify it to the consumer reporting agency, the agency must investigate the matter unless your dispute is meritless.
Consumer reporting agencies must correct or remove information that is inaccurate, incomplete, or unverifiable. Data that is inaccurate, incomplete, or unverifiable must be erased or corrected, usually within 30 days. However, information verified as accurate may continue to be reported by a consumer reporting agency.
Consumer reporting agencies might not report obsolete negative information. In several cases, a consumer reporting agency may not report negative information over the age of seven, or bankruptcies over the age of 10 years.
Limited access to your file. A consumer reporting agency may only provide information about you to people with a valid need — usually to a creditor, insurer, employer, landlord, or other business considering an application. The FCRA points out those with legitimate access criteria.
You must give your consent for employers to receive reports. A consumer reporting agency may not provide your employer, or a potential employer, with information about you without your written consent. In the trucking industry, generally, written consent is not required.
You may restrict the “prescreened” credit and insurance offer that you get based on your credit report information. Unwanted “prescreened” credit and insurance offers must provide a toll-free telephone number which you can call if you wish to delete your name and address from the lists on which such proposals are based. With the nationwide credit bureaus, you can opt-out at 1 888 5OPTOUT (1 888 567 8688).
You can seek damages from violators. When a consumer reporting agency, or in some cases a consumer report user, or a furnisher of information to a consumer reporting agency, breaches the FCRA, you may be entitled to sue in federal or state court.
Victims of identity theft and military personnel who are in active duty have additional rights. Visit www.consumerfinance.gov/learnmore for more information.
Consumers have the right to a security freeze.
You have the right to put a ‘security freeze’ on your credit report, which will prohibit the disclosure of information in your credit report by a consumer reporting agency without your express authorization. The security freeze is designed to prevent approval of credit, loans, and services in your name without your consent. However, you should be aware that using a security freeze to control over who gets access to your credit report’s personal and financial details may delay, interfere with, or prevent the timely approval of any subsequent request or application you make for a new loan, credit, mortgage or any other account involving credit extension.
You have the option to put an initial or extended fraud alert in your credit file, at no cost, as an alternative to a security freeze. An initial fraud alert is a 1-year warning put on a credit file of a consumer. When a consumer’s credit file shows an alert for fraud, a business is required to take steps to confirm the consumer’s identity before issuing new credit. If you are a victim of identity theft, you are entitled to an extended alert for fraud, which is a 7-year fraud alert.
A security freeze does not extend to a person or entity, or its associates, or collection agencies operating on behalf of the person or entity with whom you have an active account requesting information in your credit report for account verification or collection purposes. Account review includes account management operations, monitoring, credit line increases, and account updates and enhancements.
The Fair Credit Reporting Act gives you the ability to restore your credit, but it is not doing the job for you. When your credit reports contain questionable negative things, and you do nothing about them, the chances are that they will stay on your record. You can only ensure your credit reports are a reasonable and correct reflection of your creditworthiness by exercising your FCRA rights, or by enlisting a trusted credit repair specialist or a credit repair expert. There are many local and regional credit repair services that work under the laws of the particular region, as well as the FCRA, and can help you out. If you are in California, then looking for credit repair services California will be of assistance.
States can enforce the FCRA, and many states have their own laws regarding consumer reporting. You can have more rights under state law in some cases. Contact your local or state consumer protection agency or your state attorney general for more information.