Fair Credit Reporting Act

The Fair Credit Reporting Act, or FCRA, contains legal terminology that individuals often struggle to comprehend. We're going to help you understand your rights under this act. By doing so, you'll gain a better appreciation for how the entire consumer credit reporting industry works.

The purpose of the Fair Credit Reporting Act was to establish the ground rules for consumer credit reporting agencies. These rules allow credit agencies to fulfill their role as suppliers of credit information to the commerce market, while at the same time protect the privacy and rights of consumers. The intention of the FCRA is to be fair to consumers, while at the same time make sure the reports are as accurate as possible.

Consumer Credit Reports

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If you've ever applied for a credit card, a personal loan, insurance, or even a job, then there is a very good chance your credit file was requested as part of that process. That file contains more than just your payment history. It can include information such as past lawsuits filed against you, arrest records, and whether or not you've filed for bankruptcy. All of this information can help predict the level of non-payment risk you present to a potential creditor or lending institution.

The companies gathering and reporting this information are known as credit reporting agencies or credit bureaus. There are three major companies that collect this type of consumer credit information: Equifax, Experian, and TransUnion. Perhaps the most important source of revenues for these companies is the selling of consumer credit reports to potential creditors, employers, and other businesses.

Accuracy of Credit Reports

One of the important roles of the Fair Credit Reporting Act was to ensure the accuracy of the information contained in these credit reports. Recent amendments to the FCRA now place an additional burden on reporting agencies to ensure the accuracy of the reports they are compiling. In addition, those businesses that use these reports also have some added responsibilities.

Protecting Privacy of Reports

To protect the privacy of consumers, the FCRA has outlined only three ways that a reporting agency can furnish a credit report to anyone.

In response to a court order or subpoena.
In response to the written instructions of the consumer.
To a person or business that intends to use this information to extend credit to the consumer, potential employers, in the underwriting of insurance, eligibility for a license (that pertains to a financial responsibility), or an otherwise legitimate business transaction involving the consumer.

Removing Information from Credit Reports

To be fair to consumers, the FCRA also outlines rules for the removing of obsolete information from credit reports. Essentially, this is old information about the person's past payment history that may not apply to them today. The types of information that needs to be removed and the timelines for removal include:

Chapter 11 bankruptcy filings that occurred more than ten years ago.
Lawsuits or judgments against the consumer that happened more than seven years ago.
Paid tax liens that are more than seven years old.
Accounts that were placed in collections more than seven years ago.
Records of arrest, indictment, or conviction of a crime more than seven years after the date of disposition, parole, or release.
Any other piece of information that would negatively reflect on the consumer's ability to obtain credit that is more than seven years old.

There are three circumstances that serve as exceptions to the rules outlined above. Meaning that the above information can still be reported after these dates if the consumer:

Requests credit involving $50,000 or more.
Underwriting of life insurance of $50,000 or more.
Employment where the salary is expected to be $20,000 or more annually.

Free Credit Reports

The FCRA also changed the way that credit reporting agencies could charge consumers for credit reports. We talk about this at length in our article on Free Credit Reports. You are entitled to a free credit report every 12 months from each of the three credit reporting agencies.

In addition, you can also obtain a free credit report if any company has taken "adverse" action against you in the past 60 days. For example, an adverse action might be a credit card company that denies you credit. If that happens, you have 60 days to request a free copy of your report.

In that report, you will find a list of anyone who has requested a copy of your report in the past two years. The report will also outline the various sources of information contained in your report.

Credit Scores versus Credit Reports

As part if their service to the commerce industry, all credit reporting agencies have developed proprietary credit scores, the most common being FICO scores. These numerical scores help companies make faster decisions as to whether or not to extend you credit, or require deposits for service.

For example, an electric company might do a quick credit check while you are requesting electric service. If your credit score is below a certain threshold, they will likely ask you for a deposit before providing service to you.

As consumers, you are entitled to the free credit reports as outlined above. Credit reporting agencies are not obligated to provide you with your credit score. If you want to see your score, then you will have to pay a small fee of around $10 to $20.

Accuracy of Credit Information

Under the law, all credit reporting agencies are responsible for correcting inaccurate information appearing on your credit report. If you request a copy of your report, and find information on your report that is not accurate, here are the six steps you should take to correct your credit report:

Contact the Credit Reporting Agency and explain to them, in writing, about the information you believe to be incorrect. Attach a copy of the report and any backup documentation. Be specific in referring to the item(s) you believe to be incorrect.
At the same time, contact the creditor or other information provider, in writing, that you are disputing an item on your credit report.
The agency is obligated to investigate all items in question within 30 days, unless they consider your dispute to be frivolous. The agency is also required to forward all information to the provider of the disputed information. The provider must then provide a written response to the agency outlining their findings.
If the information you're disputing is found to be incorrect, then the company providing that information is obligated to contact all reporting agencies to correct the error on your reports.
After the investigation has been completed, the agency must provide you with a written summary of the findings and a free copy of your report if the dispute results in a change to your report. The agency will also provide you with the name and address of the provider of the inaccurate information.
Finally, if after the investigation, the reporting agency refuses to correct an error on your report, then you need to ask them to include your statement of the dispute or error. Each report contains an information field that offers the consumer a chance to explain why they believe an error still exists on their credit report.

Contacting Credit Reporting Agencies

If you think there is an error on your credit report, or you discovered an error on your report and you've decided to contact a credit reporting agency, the mailing address and toll free telephone number for each of the three major agencies appears below, as well as links to their websites:

Equifax
P.O. Box 740241
Atlanta, GA 30374-0241
(800) 685-1111

Experian
P.O. Box 2104
Allen, TX 75013
(888) EXPERIAN (888-397-3742)

TransUnion
P.O. Box 1000
Chester, PA 19022
(800) 916-8800

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