What is the Fair Credit Reporting Act?

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The Fair Credit Reporting Act is a federal law that regulates the collection, dissemination, and use of consumer information by credit reporting agencies. Consumer reporting agencies collect and maintain information on consumers to provide consumer reports to third parties. Here’s everything you need to know about the Fair Credit Reporting Act.

What is the Fair Credit Reporting Act?

Passed in 1970, the Fair Credit Reporting Act (FCRA) is a federal law that enforces the accuracy and privacy of consumers’ personal information when collected and shared by consumer reporting agencies. You may already be familiar with the three major credit bureaus – Experian, TransUnion, and Equifax – but there are other reporting agencies that keep track of personal information, such as background checks for employment screening, insurance, medical records, and rental history.

The FCRA applies to all these organizations. Also answerable to the FCRA are information furnishers, which are companies that supply consumer details to reporting agencies. Regarding credit information, the FCRA sets regulations to keep credit bureaus and the entities that interact with them, in check. In addition, it outlines certain consumer rights for their knowledge and protection. Below we’ll describe what these protocols are.

The FCRA and the Consumer

The FCRA was designed to promote accuracy, fairness, and privacy in the consumer reporting system. The law sets out specific requirements for consumer reporting agencies and gives consumers certain rights regarding the information collected and disseminated about them.

Here are the protections afforded to consumers via the Fair Credit Reporting Act:

① You have the right to ask for your credit score You can submit a request for your credit score from the reporting bureaus; however, unlike your annual credit report entitlement, it’s not free. Note, though, that there are also certain credit cards that provide complimentary credit score information as part of their included benefits.
② You have the right to be informed when your credit report has been used to take action against you. This includes when your application for credit or a loan is declined, if you are denied insurance or employment, or if you are approved at a high interest rate because of what’s found in your credit report. The user that performed this negative action must inform you of the decision and provide you with the contact information of the bureau from which it obtained your consumer data. You’re entitled to receive these details so you can verify and dispute, if applicable. In addition, you’re eligible to receive a free copy of your credit report if you’ve fallen victim to identity theft and placed a fraud alert on your profile, or if fraud has caused incorrect information to be reported on your file. If you’re on public assistance or unemployed yet seeking to apply for work within the next 60 days, you’re also qualified to get a free copy.
③ You have the right to dispute the information in your credit report. If something doesn’t look right in your report – an account you paid and closed still shows as open, you see a delinquency that you did not commit, etc. – you’re allowed to contact the credit bureau and dispute the inaccuracy. Be aware that this is a multi-step process and you must have evidence to support your case.
④ You have the right to opt out of prescreened offers for credit and insurance. Chances are you occasionally receive mailers from credit card issuers about products that you have been pre-approved for. Credit reporting agencies share your information with financial institutions, which allows them to target potential customers. However, you can opt out of receiving these offers. Mailers are required to include a phone number you can call in order to remove your details from their lists. Alternatively, you can call 1-888-5-OPTOUT.
⑤ You have the right to enact a security freeze on your credit report. By placing a security freeze on your report, bureaus are not allowed to share your information without your consent. You may wish to do this if you don’t want unsolicited approvals for credit or loans. Note that this action only applies to entities you do not already have a relationship with that’s noted in your credit report. Companies through which you already have an account may still access your file for monitoring or collection purposes.
⑥ You have the right to pursue damages from FCRA violations. You can sue a business that violates your FCRA rights in state or federal court. Such a case would be different from, say, an error committed by said business. However, if the business in question refuses to amend its mistake – thereby continuing to reflect negatively on you – you’re entitled to seek legal action.

The FCRA and the Consumer Reporting Agency

The FCRA also applies to credit reporting agencies. “Consumer reporting agencies” include the usual credit bureaus and agencies, such as Experian Equifax, and TransUnion, These agencies are bound by the following regulations through the FCRA:

① Reporting agencies must amend incorrect or inaccurate information. If you dispute a legitimate inaccuracy on your credit report, both reporting agencies and furnishers are compelled to either correct or remove it from your file, usually within 30 to 45 days.
② Consumer reporting agencies may not report outdated negative information. Adverse actions on your credit report, like late payments, collection accounts, or bankruptcies, should be removed from your file after a specified amount of time (seven years for most delinquencies and up to ten years for bankruptcies). Bureaus that continue to display such information after the required time has passed would be in violation of the FCRA.
③ Reporting agencies may only share your credit file with people or companies that have a valid purpose for accessing it. Your report cannot be accessed by anyone who does not have a permissible reason, such as consideration for a loan or credit application. The FCRA outlines entities and motives that are accepted for access.
④ Reporting agencies must obtain your written consent before they can share your credit information with your employer (present or future). Companies you currently work for, or may potentially work for, may request access to your consumer information. However, you must first give authorization in writing before the reporting bureau can disseminate your details. When you apply for a job, you’ll typically find an area of the application that requests your consent to view your credit report.

The FCRA and Information Furnishers

Under the FCRA, information furnishers must provide accurate and complete information to reporting agencies. When they don’t, it can lead to a dispute on your part. If a furnisher fails to disclose information – or does it incorrectly – it’s generally not deliberate; otherwise, you can take legal action. Furnishers are required to investigate disputes initiated by consumers and correct any information found to be inaccurate. Related to the point above, if a consumer disputes a piece of information in their credit report provided by a furnisher, the latter must look into it along with the reporting agency. If there is indeed a mistake, it must be adjusted in a timely manner by all parties.

One Last Thing

The provisions under the FCRA apply at the federal level. Individual states, however, may have their own consumer reporting laws that grant you added protection. Reach out to your state’s Attorney General or consumer protection agency (if there is one) to find out whether there are additional stipulations worth knowing.

Overall, the Fair Credit Reporting Act and consumer reporting agencies provide essential consumer protections. By giving consumers access to their credit reports and the ability to dispute errors, the FCRA helps ensure that credit reports are accurate and that consumers are not unfairly penalized for past mistakes. The law also helps protect consumer privacy by limiting the dissemination of consumer information and requiring consent before credit reports are provided to third parties.

Related Article: Credit Card Purchase Protection: Everything You Need to Know

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About: Cory Santos
Cory Santos

Cory is the senior credit card editor at BestCards, specializing in everything credit card-related. He’s worked extensively with credit cards and other personal finance topics, including nearly five years at BestCards. Cory’s extensive knowledge is an essential part of the BestCards experience, helping readers to live their best financial lives with up-to-date insights and comprehensive coverage of all facets of the credit card space, including market trends, rewards guides, credit advice, and comprehensive credit card reviews.

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