Fair Credit Reporting Act: What you need to know

If you’ve ever checked your credit report with one of the three major credit bureaus, you may have wondered how they got your credit information or whether it’s been handled safely and fairly. The Fair Credit Reporting Act (FCRA) is a law that helps look after the information in consumer credit reports. Read on to learn about the FCRA, the role of consumer reporting agencies, consumer rights and more.

Key takeaways

  • The FCRA helps protect the fairness, accuracy and privacy of consumer credit information. 
  • Anyone looking to access consumer credit reports must have a legally acceptable reason to obtain the information.
  • The Credit CARD Act and the Dodd-Frank Act are other acts associated with the FCRA.
  • The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) enforce the FCRA.

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What is the Fair Credit Reporting Act?

The FCRA is a federal law passed in 1970 to protect consumer credit information. The FCRA controls how credit reporting agencies can collect, use, access and share consumer credit information. Consumers’ credit information can’t be shared with anyone unless it’s for a reason specified under the FCRA. 

For example, businesses such as lenders or credit card issuers may ask for a credit check when you apply for a loan or credit card. This might be to see if you qualify. A landlord might also check your credit report when you’re applying for an apartment. 

The FCRA requires landlords, lenders, insurers, employers, creditors and other businesses to have a legitimate reason to ask for your credit report. If a business reason does not fall under the FCRA guidelines, permission to acquire a consumer’s credit report might not be granted.

What does the Fair Credit Reporting Act do?

The FTC and the CFPB are two federal agencies that enforce the FCRA. Some states may also have their own credit reporting rules and regulations. When it comes to consumer information, the FCRA protects the information collected in credit bureau files and helps consumers understand what actions they can take with their own information. 

The FCRA observes how information is acquired, how it’s shared, with whom it’s shared and how long the information is retained. These credit reporting protections are guaranteed by federal law. Consumers can report agencies, organizations or businesses that misuse their information. 

Your right to understand and protect your own credit information is important because it might have an impact on your ability to access loans, housing and other services. In addition to the three credit bureaus (Equifax®, Experian® and TransUnion®), other financial institutions and organizations may also collect your credit information. 

The information in your credit file can influence your chances of accessing a mortgage loan, car loan, personal loan or credit card. It can also help determine your interest rate and might even be considered when applying for a job or insurance coverage in certain states.

How does the Fair Credit Reporting Act protect consumers?

The FCRA outlines specific protections and rights for consumers. According to the FCRA:

  • You must be informed if the information in your file is the reason your application was denied. If your credit report is being used by a business or person to evaluate your creditworthiness, you must be told if the application is denied or if any other adverse action is taken. You should also be provided the name, address and phone number of the agency that provided the information.
  • You have a right to access your credit file. Every consumer has the right to request any and all information about them in their reports. You can get one free credit report every 12 months from each credit bureau by visiting AnnualCreditReport.com. If you are a victim of identity theft or are unemployed while job seeking, you may also have access to a free credit report.
  • You can request your credit score. Credit scores allow you to see the overall summary of the information in your credit report. Depending on your lender, you may be able to find your scores by checking your statement or by logging in to your account online. You can also get your scores directly from the credit bureaus and credit-scoring companies—but you might have to pay for them. With CreditWise from Capital One, you can access your credit score for free anytime without negatively impacting your score. CreditWise is free and available to everyone, even if you don’t have a Capital One credit card.
  • You are allowed to dispute inaccuracies. If you find and report information in your credit report that is incomplete or inaccurate, consumer reporting agencies are required to investigate the claim.
  • You can put a security freeze on your credit report. When a security freeze is in place, consumer reporting agencies must have your permission to share your information with others. This can help if you think you are the victim of identity theft, for example, since limited access to a credit report can prevent anyone from taking out new loans or lines of credit in your name. 

All the above rights are protected by law. This means if a rule or regulation under the FCRA is violated, you may have the right to file a lawsuit in state or federal court. 

There are also some newer federal laws that protect consumer rights. The Credit Card Accountability Responsibility and Disclosure Act of 2009 enforces clear and transparent credit card terms and conditions. It also requires that credit card issuers cap interest rates and charges for credit card users. And the Dodd-Frank Wall Street Reform and Consumer Protection Act prevents financial institutions and creditors, like mortgage companies and payday lenders, from engaging in unethical practices.

Fair Credit Reporting Act requirements for consumer reporting agencies

In addition to the FCRA protections for consumer rights, the FCRA also includes specific requirements for consumer reporting agencies, which include the following:

  • Consumer reporting agencies are responsible for investigating consumer disputes. Information that’s incorrect or incomplete should be removed or corrected. And typically, this must be done within a month. Consumer reporting agencies shouldn’t report negative information that is more than seven years old. Agencies also should not report bankruptcies that are over 10 years old.
  • Consumer reporting agencies must keep your information private and limit access. Unless the business or person has a legally permissible reason to view your credit report, access to your information is limited.

Fair Credit Reporting Act in a nutshell

It’s important to understand your rights as a consumer under the FCRA. It’s also essential to have a clear understanding of how the information in your credit file is used, how it informs business decisions and how it might affect your financial opportunities. 

Staying on top of your finances can help create a healthy financial track record and credit history, which ultimately will impact your credit scores. Monitoring your credit report can help resolve errors and catch any signs of suspicious activity or identity theft. If you come across information in your credit report that seems incorrect, you can dispute it or contact the consumer reporting agency to correct the information.

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