The Fair Credit Reporting Act (FCRA) is a federal law that regulates credit reporting agencies and compels them to insure the information they gather and distribute is a fair and accurate summary of a consumer’s credit history.
The FCRA is chiefly concerned with the way credit reporting agencies use the information they receive regarding your credit history. The law is intended to protect consumers from misinformation being used against them. It offers very specific guidelines on the methods credit reporting agencies use to collect and verify information and outlines reasons that information can be released.
The law was passed in 1970 and amended twice. It is primarily aimed at the three major credit reporting agencies — Experian, Equifax and TransUnion — because of the widespread use of the information those bureaus collect and sell. The law also applies to banks, credit unions and agencies that sell medical records and check writing or rental history records, as well as any businesses that use information on credit reports for hiring purposes.
The FCRA has come up often in media reports because advocacy groups question the accuracy of the information credit reporting agencies gather and consumers’ ability to dispute that information and have it removed from their credit report.
What Are Credit Reporting Agencies?
Credit reporting agencies (CRA) are responsible for gathering, processing and archiving credit information on consumers. The CRAs have information on more than 200 million Americans. They sell that information to help businesses make decisions about granting loans or credit.
The agencies collect information on every consumer’s use of credit and their bill-paying habits. The data comes from “information suppliers,” or any business that extends credit to customers. Information also is taken from public records like court judgments and bankruptcy filings. Information suppliers transmit consumer credit information electronically to the credit reporting agencies on a continuous basis, thus credit reports could change almost daily, depending on the level of a consumer’s activity.
The CRAs feed the data they receive into their own set of algorithms to come up with a score that predicts a consumer’s creditworthiness.
CRAs do not make decisions on whether consumers get a loan. That decision is made by banks, credit unions, mortgage companies or card companies that extend credit. The information from the CRA is used to set the interest rate and conditions for a loan.
The FCRA provides a list of consumer rights regarding individuals’ credit history information.
Under the Fair Credit Reporting Act, you have a right to:
- Access to Your Credit Report – The act requires credit reporting agencies to provide you with any information in your credit file upon request once a year. You must have proper identification. You have a right to a free copy of your credit report within 15 days of your request.
- Protected Access – The act limits access to your file to those with a valid need. That would usually be banks, insurance companies, employers, landlords or others doing business that involves offering credit. You also have the right to know who has requested your credit report in the last year or, for employment-related requests, two years.
- Accurate Reporting – If inaccurate information is discovered in your file, the consumer reporting agency must examine the disputed information, usually within 30 days. If the inaccurate information cannot be verified, the consumer reporting agency has a responsibility to remove it. If you are not able to clear up the matter, you are allowed to add a statement to your credit file explaining the situation.
- Have Outdated Information Removed – Negative information must be removed from your file after seven years. Bankruptcy, however, may remain on record for 10 years, and criminal record information can remain indefinitely.
- Maintain Medical Information Privacy – You are protected from having medical information in a consumer report, as creditors are prohibited from obtaining or using medical information when making a credit decision.
- Limit Unsolicited Credit Offers – The law allows you to request to have your name and address removed from unsolicited prescreened offer lists for credit and insurance. To opt out of such correspondence, call (888) 5-OPTOUT (888-567-8688).
- Protect Your Personal Account Numbers – Businesses are notpermitted to publish full credit card numbers on receipts. The law also allows you to protect your Social Security number by having it truncated on your credit report.
- Receive Notification of Possible Negative Information – You have the right to be notified if any financial institution submits, or plans to submit, negative information to a credit reporting agency. This information may be included in a billing statement or a notice of default.
- Seek Damages – You have the right to sue and seek damages in a state or federal court from anyone, such as a consumer reporting agency or a user of consumer reports, who violates the Fair Credit Reporting Act.
- Know When Your Credit Report Is Used Against You – If you are denied credit, insurance or employment because of your credit report, you can ask for the specific reason for the denial.
- Know Your Credit Scores – You have a unique credit score with each credit bureau, which you can request. In some cases, you may be required to pay for this information.