Fair Credit Reporting Act Explained

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The Fair Credit Reporting Act (FCRA) is a United States federal law passed by the Federal Trade Commission (FTC) in 1970 to regulate consumer rights and how banks and other entities use their information.

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One of the primary purposes of the Fair Credit Reporting Act is to give consumers the right to know the information listed in their credit report. It also allows consumers to dispute any errors on their credit reports.

Prior to the passing of the Fair Credit Reporting Act in 1970, banks and other lenders were largely unregulated and could lend money and deny loans at their own discretion.

The FCRA was implemented to protect consumers from being discriminated against due to race, ethnicity, family, and any other subjective means of determining an individual’s ability to repay a loan.

How does the Fair Credit Reporting Act (FCRA) protect you as a consumer?

One of the most important purposes of the Fair Credit Reporting Act is to protect consumers like you by regulating the consumer reporting agencies (also referred to as credit reporting agencies or credit bureaus.)

The three major consumer reporting agencies are Equifax, Experian, and TransUnion. Under the FCRA, you are entitled to one free credit report every 12 months from each consumer reporting agency upon request so that you can review each of them for accuracy.

You can learn how to obtain your free copy here. The consumer reporting agencies must also provide a way for you to dispute any errors on your credit report and potentially have them removed.

The Fair Credit Reporting Act ensures that your credit reports are a fair and accurate representation of your creditworthiness.

Credit Bureau Disputes

The Fair Credit Reporting Act requires credit bureaus to facilitate disputes between creditors and individuals. If you disagree with an item on your credit report, you may file a dispute by writing a letter to both the consumer reporting agency and the creditor. The credit bureaus must investigate the claim within 30 days.

They are then required to send you the results of the investigation in writing. If the consumer reporting agency does not resolve the dispute through its investigation, you are allowed to explain the situation in a statement in your credit file.

If the process results in a change on your credit report, such as a negative item being removed, then you are entitled to receive a free updated credit report.

You can also ask the consumer reporting agency to send your updated credit information to any company that received your credit report in the last six months or any potential employer who checked your credit in the last two years.

Credit Reporting Limitations

Not only does the Fair Credit Reporting Act allow for a consumer-friendly dispute process, but it also outlines how long negative information can remain on your credit reports.

This prevents items in the distant past from affecting your future financial opportunities. Items usually remain on your credit report for seven years, but can stay as long as 10 years in cases of bankruptcy.

The FCRA also requires consumer reporting agencies to either correct or delete inaccurate items on your credit reports. If you prove that something is not correct or that the information cannot be verified, it should be removed.

Banks and Credit Card Issuer Regulations

The Fair Credit Reporting Act also regulates other users of your consumer credit information. In particular, it oversees the companies that provide information about your credit history to the credit bureaus.

These types of companies typically include banks, credit card companies, utility companies, cell phone carriers, courts, and other lenders. They report information such as credit card and loan balances, late payments, and delinquent accounts.

The FCRA requires these companies to be responsible when providing accurate information to the credit bureaus. Additionally, they must notify customers when negative items are about to be put on their credit report, and must fully investigate disputes which come through the credit bureaus.

Who can access your credit report under the Fair Credit Reporting Act?

The FCRA is designed to restrict who is permitted to access a consumer’s credit file. Credit inquiries are primarily limited to lenders, insurance companies, and employers, and they all must have a permissible purpose for requesting a copy of your credit report.

The most common reasons include evaluating a loan or credit card application or evaluating you as a job candidate. Be aware that you must give your employer or potential employer written consent before they can legally request your consumer report.

Landlords may also require a credit check before approving your rental application, in order to make sure you’re likely to pay your rent on time each month. They’ll need your written consent and will probably charge you the cost of pulling your credit history.

When one of these parties does access your credit report, they must notify you when a negative course of action is taken as a result of any items found.

For example, if your mortgage application is declined, the lender must disclose to you the actual credit score is used in your application and the key reasons for the denial. If you feel you have been discriminated against, you may submit a complaint against the lender to the Consumer Financial Protection Bureau (CFPB).

Access to Your Credit Scores

The FCRA allows you to access your credit scores from each of the three consumer reporting agencies. However, while they are required to send you your credit report for free every 12 months, your credit scores are not free. You can request to see them at any time.

Credit Monitoring

Each of the three consumer reporting agencies offers a range of products that allows you to see your credit scores.

The program you’ll likely see advertised the most is a subscription service that shows you if and how your credit score changes month to month.

These alerts also help prevent or detect identity theft, as well as active duty alerts for members of the military.

One-Time Purchase

If you want to purchase your credit score outright, you’re probably going to have to dig around the website slightly. Then, you’ll likely pay between $10 and $15, depending on which consumer reporting agency you select.

If you want to see your credit scores from each of the three consumer reporting agencies, look for a bulk deal where you get all three scores for a discounted price.

learning about the FCRA

Applying for a Loan

Another way you get to see your credit report is when you’re applying for a loan like a mortgage. Most lenders are required to supply you with a Credit Score Disclosure. This helps keep the entire process transparent so you understand the decisions being made regarding your credit and can dispute them if necessary.

This includes information relevant to your loan approval, including your credit score, the relevant credit score range (for example, 300-850 for a FICO score), your score compared to the overall population, and how to access a copy of your credit report.

Lenders don’t just use your score to determine whether or not you’re approved for a loan. They also use it to decide what type of interest rate and loan terms you qualify for, which is called risk-based pricing.

Opting Out of Mailing Lists

Unfortunately, it’s easy to get on marketers’ mailing lists that fill your mailbox with credit and loan offers. That’s because consumer reporting agencies are allowed to provide companies with the names and addresses of consumers in various credit profiles.

The CRAs then send you seemingly personalized mail for credit cards, homeowner’s insurance, and more. However, the FCRA allows for an opt-out process so that you can remove your information from these lists.

Call 1-888-5-OPT OUT or visit www.optoutprescreen.com to have all three consumer reporting agencies stop sharing your contact information to creditors for five years.

You can visit the same website to opt-out permanently, then sign and return the Permanent Opt-out Election Form. Your other option is to send written requests to each consumer reporting agency.

How can you make the Fair Credit Reporting Act work for you?

Despite having a significant amount of rules and regulations, the FCRA can be a useful tool in protecting consumers.

It enables consumers like you to know more about why you may be denied funding and what you can do to secure loans in the future. Plus, disputing negative information on your credit reports can help you improve your credit score.

Hire a Professional

Luckily, you don’t have to figure out all of the FCRA’s intricacies on your own to put it to practical use in your life. Credit repair services specialize in helping you use the FCRA and other laws to your full advantage. You can get yourself on the right path to repairing your credit by signing up with one of them.

Read our reviews of the best credit repair companies to find the right one for you. As professionals, they’ll do all the hard work for you and make sure you don’t miss any details that can help your financial welfare.

Lauren Ward
Meet the author

Lauren is a Crediful writer whose aim is to give readers the financial tools they need to reach their own goals in life. She has written on personal finance issues for over six years and holds a Bachelor's degree in Japanese from Georgetown University.