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What Is the Fair Credit Reporting Act?
The Fair Credit Reporting Act (FCRA) is a federal legislation that governs consumer credit information collection and access to credit reports. It was enacted in 1970 to ensure the fairness, accuracy and privacy of personal information stored in credit reporting agencies’ files. This act is enforced and overseen by two federal agencies: the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB).
Understanding and awareness of the FCRA is important for all credit card holders, as any violations can incur fines. After all, information about your credit is used in a variety of finance-related activities, such as getting a loan, determining your credit score or even deciding your rental agreement.
How the Fair Credit Reporting Act Works
The Fair Credit Reporting Act (FCRA) is a federal legislation that regulates how consumers’ credit information is collected and reported. In particular, it specifies how information can be acquired, how long it's kept and how it’s shared. The act also gives consumers the right to view their credit reports, review the accuracy of their information and allows them to dispute any errors that affect their status.
Both the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) are charged with the responsibility of overseeing and enacting the provisions of this law across the U.S. However, certain states also have additional laws related to credit reporting.
The FCRA regulates credit bureaus, such as Equifax, Experian and TransUnion, which collect and sell consumers’ financial history.
Why Is the Fair Credit Reporting Act Important?
Prior to the FCRA being enacted, the three big credit bureaus — Equifax, Experian and TransUnion — had total control over consumers’ credit reports and scores. This made getting a credit report challenging or not possible, which meant banks made decisions regarding your loans and credit cards using information not privy to the public.
With the FCRA being enforced, consumers now have rights to their credit. Such information about your credit is vital, as it can affect your credit scores. Your credit score is the tool or benchmark used by many financial institutions to determine if you are creditworthy, which can impact your credit card interest rates, your loan rates and more.
Example of the FCRA
Credit often comes into play when you make a purchase or obtain a service. This is why it’s crucial to review that all activities and information is accurately reported to your credit profile.
For example, let's say someone is applying for an auto loan and is quoted a higher interest rate due to their credit score. However, their last known credit score was excellent and they should be getting a much lower interest rate. They believe they could be receiving a higher interest rate quote because of other discriminatory factors, such as their skin color or religion, which is unlawful.
Thanks to the FCRA, consumers can request their credit report to see if their latest information does justify the high interest rate, if there is an error or if the lender was dishonest about pulling the information. If a violation did happen, the lender could be reported and fined.
Learn Your Rights Under the Fair Credit Reporting Act
In order to protect consumers, the FCRA regulates how information contained in consumer credit reports may be used and accessed. Knowing and understanding these rights ensures that you are given a fair and equal opportunity to access financial products and benefit from better rates. Below are a few key aspects and rights of the FCRA that consumers should know about.
Notice if credit information is used against you
Under the FCRA, you have the right to be informed should information from your credit report be used against you to deny an application for credit, employment, insurance and more. For instance, if an employer denies your application due to your credit score, you have the right to know.
Access and know what’s in your file
You can request and access any and all information consumer credit reporting agencies have every 12 months for free. Getting access to your credit report is essential to ensure all information is accurate and complete.
Ask for a credit score (for a fee)
Your credit score can be requested from consumer reporting agencies that create or distribute scores at a cost. For instance, if you need to see your score for any reason and pay the fee to see it, consumer reporting agencies cannot withhold it from you.
Dispute inaccurate information
If you have inaccurate, incomplete or unverifiable information on your report, you have the right to dispute it. For example, if you notice a late payment on your report even though it never happened, you can report this to your respective credit bureau.
Correct or delete inaccurate information
Inaccurate information can also be corrected, not just removed. For instance, if you notice a small spelling mistake in your name, you should and can dispute it, as it can cause errors when lenders look up your report.
Remove outdated negative information
Negative and outdated information can only stay on your credit report for a limited amount of time, usually seven to 10 years. If it’s past the limit and you notice your negative information is still in your report, you can report this under the FCRA.
Restrict and limit access to your reports
Not everyone can access your file. A consumer reporting agency can only give your information to institutions or people with a valid need, such as your landlord or lender. For example, your family member cannot ask for access to your credit report.
Give consent to employers
While employers are counted as individuals who can access your credit report, you must still grant your written consent.
Limit "prescreened" offers of credit or insurance based on information from your report
Unsolicited offers for credit or insurance that you receive due to your credit report must include a toll-free number where you can choose to remove your name and address from their lists.
An Overview of FCRA Reporting Requirements and Penalties
Under the FCRA, consumer reporting agencies, lenders, insurers, landlords, employers and other individuals who want your credit report must comply with certain rules and requirements. This is to confirm that your information will be used correctly and only given to the right parties. The following are some additional FCRA reporting requirements.
Any party seeking a credit report must have a legally permissible purpose.
The FCRA allows reporting agencies to give out a consumer report for only legally permissible purposes, such as in accordance with a court order or a consent letter. It may also be given for any of the following reasons:
- A credit transaction involving the consumer
- Employment purposes
- Underwriting insurance involving the consumer
- Validation of a consumer’s eligibility and financial responsibility for a license or benefit granted by a governmental agency
- Business transaction a consumer initiatives
- Account review to determine if a consumer meets the terms of the account
- Request made by the head of a state or local child support agency
Credit reporting agencies must remove negative information after seven to 10 years.
Information regarding a lawsuit or a judgment made against a consumer can stay on a report for up to seven years, while bankruptcies can stay up to 10 years. After this period, consumer credit reporting agencies must remove it from your credit report.
Employers must have written consent to access credit reports.
Employers are not allowed to access your credit report without your written consent. If you do grant consent, they must also provide a copy of the report and a description, in writing, of your consumer rights.
Credit, insurance and other entities that provide "prescreened" offers must provide a short and long notice of opt-out information in each solicitation.
Every "prescreened" offer given to you by any entity must include a short and long notice on how to opt-out and how the offer is "prescreened".
Penalties for Not Complying With FCRA
If a consumer reporting agency, or in some situations, an individual who gets consumer reports or submits information to a consumer reporting agency, violates the FCRA, it is possible to sue them in state or federal court.
Fines for each violation can vary from $100 to $1,000. If losses are incurred, the court may also impose real and punitive damages, as well as legal fees. If someone acquires fraudulent information from a consumer reporting agency knowingly and willingly, they may even face criminal charges.
Understanding the Fair Credit Reporting Act Common Violations
The Fair Credit Reporting Act has a few common violations that involve the thousands of businesses that report information and the three main credit agencies responsible for your credit report. Below are a few common violations to look out for.
Submitting old information
Your credit report must be updated regularly, whether it’s to add an activity or to note changes in your circumstances. However, some institutions may, by accident, submit old information to credit bureaus. For instance, a bank may report an old debt as a new one, or have an inaccurate statement of your due balance.
If a credit reporting agency has mixed your files with another by mistake, even though you have furnished the correct information, they can be sued for negligence.
Failing to follow debt dispute procedures
Credit agencies and creditors alike must follow the proper procedure for every disputed debt. However, they may sometimes fall short in these areas and take shortcuts.
A consumer’s credit information can only be disclosed to entities with a valid need that falls under the FCRA. It is a violation to pull a credit report for a purpose deemed impermissible, such as an employer pulling a report without your consent.
It is mandatory to inform you of what your credit information will report, handle and be used for. For example, a credit agency must notify you if they supply negative credit information and provide your credit score if it was used to make any credit decision.
How to Deal With FCRA Violations
The financial health of individuals hinges on the information reported under the FCRA. If violations occur, consumers can file suit and collect reparations damages. How much a consumer can get compensated for depends on the violation and whether it was done knowingly or simply due to negligence. Generally, however, a consumer can sue credit reporting agencies, financial institutions, employers and other individuals who have pulled their credit or submitted information.
If you feel that your credit profile has been subjected to FCRA violations, the following steps can be taken.
- File a suit for willful violations. If you can prove that a credit reporting agency or credit entity willfully or intentionally violated your rights and information, you can sue them under the FCRA.
- File a suit for negligent violations. If a credit reporting agency or credit entity did not know they violated your rights under the FCRA, such as if it was a result of negligence, you can sue. A successful lawsuit can entitle you to actual damages with no set limit or minimum and attorney fees and costs.
- Freeze your credit. If you suspect that you may be a victim of identity theft as a result of any FCRA violation, you can temporarily freeze your credit with all three major credit bureaus by contacting them individually. This way, you can prevent yourself and others from opening accounts in your name, which can further damage your credit.
- File a complaint. If a credit reporting agency or creditor submits or has incorrect or incomplete information and fails to revise it, you can make a complaint to the FTC, your state’s consumer protection agency or even your congressional representative or senator.
Fair Credit Reporting Act FAQs
Understanding your rights under the FCRA is vital for your financial health. Below are a few commonly asked questions regarding the FCRA to help you understand it better.
The Fair Credit Reporting Act (FCRA) laws can be confusing. However, it’s so important that consumers understand their rights and take the time to review and comprehend the FCRA. To help break it down, MoneyGeek reached out to several experts in the industry for their input.
- What does the Fair Credit Reporting Act (FCRA) do for consumers? How does it benefit them?
- How can consumers address violations under the FCRA?
Clinical Professor of Law at the University of Notre Dame
Editor in Chief at EDI Refinance
Supervising Attorney at The Bankruptcy Law Center
President of All Reverse Mortgage, Inc.
Awareness about the Fair Credit Reporting Act is just one of the many concepts that consumers need to understand about their credit. To help expand your financial knowledge and what impacts your credit and how to manage it effectively, explore the guides below.
- The Practical Guide to Improving Credit Fast: Your credit score is an important benchmark that creditors and entities use to determine your creditworthiness.
- Credit Card Terms 101: There are many terms used when you deal with credit cards that can seem like complicated jargon. Learn about the commonly used terms in your credit card agreement in MoneyGeek’s glossary.
- How Credit Cards Work: Prior to applying for a credit card, understanding how credit cards work is vital to ensure you don’t lead yourself to bankruptcy in the future.
- 10 Mistakes You Should Avoid When Managing Your Credit: Managing your credit is a life-long endeavor to improve your personal finances. Keep a lookout for these mistakes to avoid any problems in the future.
- Understanding Credit Card Debt & How to Pay It Off: Credit card debt can rack up quickly when you’re not looking. Learn strategies for paying it off quickly.
About Nathan Paulus
- Consumer Financial Protection Bureau. "How long does negative information remain on my credit report?." Accessed January 13, 2022.
- Consumer Financial Protection Bureau. "Fair Credit Reporting Act." Accessed January 13, 2022.
- Federal Trade Commission. "Fair Credit Reporting Act." Accessed January 13, 2022.
- InCharge. "Fair Credit Reporting Act: Common Violations and Your Rights." Accessed January 13, 2022.
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