The Fair Credit Reporting Act protects your interests by governing how credit reporting agencies collect, protect, and share your information. The FCRA includes provisions about who can request your credit report and how you can access it.
The legislation was created in 1970 to promote fairness, privacy, and accuracy in reporting credit. Over the decades, it has been modified and expanded to provide more comprehensive credit reporting protections, significantly as concerns about identity theft have increased. Since it covers so many financial tools and services, from loans to credit cards to mortgages, it helps to understand how this law works.
“Two protections that are most helpful to consumers are provisions related to ensuring that consumer information in a credit report is accurate and a set of provisions that cover how a consumer can protect themselves in a case of credit theft. identity,” explains Adam Ragan. Partner in the law firm Fox Rothschild.
How the Fair Credit Reporting Act works
Credit reporting agencies compile reports that contain sensitive information about consumers’ financial history. These details may include how timely your credit card payments are and what outstanding loan types you have. This information is useful for proving your creditworthiness in a variety of contexts, but at the same time, you don’t want it to be available to just anyone.
The FCRA benefits lenders, consumers, and credit reporting agencies by holding these organizations accountable for the accuracy and completeness of reports.
“The Fair Credit Reporting Act is an increasingly relevant and useful tool from a consumer perspective,” says Ragan. “Consumers often become aware of the FCRA because of data breaches and alerts, as well as the credit protections they have signed up for. But many consumers still struggle to understand the ins and outs of the process.”
What do credit reporting agencies do?
The three best-known credit reporting agencies are Experian, TransUnion, and Equifax. However, other credit reporting companies are smaller and specialize in areas such as rental history records. These bureaus collect information and compile a history of your credit usage on your credit report. Everything from on-time mortgage payments to credit card balance transfers could affect your credit report.
This report helps prospective lenders assess the level of risk they are taking by giving you more credit. Others, such as landlords and employers, can use this report to understand your history of trustworthiness and economic risk, as they are building relationships of trust by giving you a lease or a job offer.
The Federal Trade Commission and the Consumer Financial Protection Bureau work together to uphold the various components of the FCRA, which limit what information can be shared with credit reporting agencies and what they can share with anyone who requests your credit report. . It also gives you access to your credit information. It helps you dispute errors that damage your credit.
How the FCRA protects you
While the full text of the FCRA is available online, it is long (and dense). However, the main provisions you need to know about are pretty straightforward. They are that:
1. You have the right to a free credit report every year.
One of the valuable elements of the FCRA is that each of the three credit reporting agencies will provide you with a free credit report each year. The best way to access this service is to use annualcreditreport.com. And right now, thanks to COVID-related improvements, this site is offering free weekly access to your credit report. Some sites advertise free credit reports only to request payment later. Don’t pay for a service you can get for free.
This access is related to your broader right to know what is in your credit report file. The FCRA protects these rights, making easier and more transparent access to your own credit history.
If you want more than one credit report in a year, the FCRA sets a limit of no more than $13 per an additional report, so keep that in mind.
2. You can dispute errors on your credit report
If your credit score is low because of an error on your report, you don’t have to accept that low score. You can provide evidence to disprove the error, for example, showing that you completed all payments on a loan or never missed a payment on a credit card. As you can imagine, keeping all paperwork related to loans and credit cards in a safe place is an important step to take so you can clear up any mistakes on your credit report in the future.
Credit reporting agencies are required to evaluate the evidence you provide in a dispute and contact related entities such as lenders that provided that information. The FCRA also stipulates that they must restore your credit report if they find an inaccuracy due to the dispute. Most reports don’t contain errors, but they happen often enough that they’re worth checking out if you’re surprised by a low score.
Sometimes the information is not inaccurate but outdated. The FCRA sets rules about how long a credit reporting agency can include prior negative information on your reports. In many cases, negative information can no longer be reported after seven years or in bankruptcy, 10 years. If you find accurate information on your report that is out of date, you can submit a dispute.
3. Employers need your written consent to get your credit information.
Credit reporting agencies, in most cases, must ask for your permission in the form of written consent before giving credit information to an employer or prospective employer. This can give you a little more control over what information is shared during a job search.
4. If your credit application is denied, you have the right to know why
Most people don’t think much about their credit score or report until they’re denied a loan or credit card application. If you’re surprised by a denied credit application, you have a legal right to know why your application was denied. This is actually one way people discover errors on their credit reports, so make sure you understand the reasons why you were denied credit. If it’s not a mistake, this information can still help you make good decisions to increase your credit score in the future.
5. You have the right to freeze your credit and seek redress in cases of identity theft.
Identity theft has become easier with the prevalence of the Internet. High-profile data breaches, such as the 2017 Equifax Data Breach, highlight the need for ongoing vigilance and protection for consumers. A person’s credit could be ruined if someone fraudulently attempts to take out loans or credit cards in the person’s name.
“In 2018, a new provision implemented a policy to provide free security freezes,” says Ragan. “A credit freeze is helpful because it will prevent most businesses from accessing your credit report until you request to remove the freeze.”
While credit reporting agencies may remove security freezes in rare cases, and current creditors may still have access to your credit information, this protection makes it easier to take immediate action if you realize your information has been compromised. part of a data breach.
Additionally, the FCRA has particular provisions for victims of identity theft, many of which you may be able to access after initially obtaining an identity theft report.
“A great resource for consumers is the FTC website identitytheft.gov,” says Ragan. “There is a step-by-step process by which a consumer can generate a report. That PDF can help borrowers get some of the FCRA’s specialized relief.”
FCRA FAQs
Does the FCRA regulate banks and credit card issuers?
The FCRA regulates what information credit reporting agencies can collect and share and what information banks and credit card issuers can share with those reporting agencies.
How do I get a copy of my free credit report?
Typically, you can request a free copy of your credit report once every 12 months through the website annualcreditreport.com, the only authorized source for these reports. However, right now, you can request a free copy on a weekly basis, thanks to COVID-related benefits.
How can I dispute an error on my credit report?
You can file a dispute online, by phone, or by mail. The Consumer Financial Protection Bureau provides detailed instructions on how to write your letter, including a sample letter template, and provides information on contacting Equifax, Experian, and TransUnion separately, as some errors may occur in only one or two of your credit reports.
Each credit reporting agency contains similar information on its websites. Beware of organizations that claim to “fix your credit” but want to charge a fee, as disputing an error on your credit report should be a free process provided directly by the credit reporting agency.
Read more: How to dispute an error on your credit report