Fair Credit Reporting Act Explained


The Fair Credit Reporting Act (FCRA) is a United States federal law that was passed by the Federal Trade Commission (FTC) in 1970 to regulate the rights of consumers and the manner in which their information is used by banks and other entities.

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One of the primary purposes of the FCRA is to give consumers the right to know the information listed in their credit report. In addition, it 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 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 three credit reporting agencies (also referred to as consumer reporting agencies or credit bureaus.)

These agencies include Equifax, Experian, and TransUnion. Under the FCRA, these agencies are required to provide you with a free credit report once a year upon request so that you can review each of them for accuracy.

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

The FCRA ensures that your credit reports are a fair and accurate representation of your creditworthiness.

Credit Bureau Disputes

The FCRA 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 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 credit 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 report.

You can also ask the 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 FCRA allow for a consumer-friendly dispute process, it also outlines how long negative information can remain on your credit report.

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 agencies to either correct or delete inaccurate items on your credit report. 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 FCRA 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 FCRA?

The FCRA is designed to restrict who is permitted to access an individual’s credit history. 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 credit 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 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 as well as the key reasons for denial. If you feel you have been discriminated against, you may submit a complaint against the lender to the Consumer Financial Protection Bureau.

Access to Your Credit Score

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

Credit Monitoring

Each of the three credit 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 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 just want to purchase your credit score outright, you’re probably going to have to dig around the website a little bit. Then you’ll likely pay between $10 and $15 depending on which agency you select.

If you want to see your credit scores from each of the three 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 in regards to 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 credit reporting agencies are allowed to provide companies with the names and addresses of consumers in various different 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.

Simply call 1-888-5-OPT OUT or visit www.optoutprescreen.com and all three credit reporting agencies will stop sharing your contact information to creditors for five years.

To opt-out permanently, you can visit the same website, then sign and return the Permanent Opt-out Election Form. Your other option is to send written requests to each individual 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 an extremely useful tool in protecting consumers.

It enables consumers like you to know more about why you may be denied funding, as well as what you can do to secure loans in the future. Plus, disputing negative information on your credit report 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 in order 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.