The purpose of the Fair Credit Reporting Act, or FCRA, was to establish the ground rules for consumer credit reporting agencies. These rules allow 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 making sure the reports are as accurate as possible. In this article, we'll discuss the structure of credit reports, their accuracy, privacy protections, and how to remove outdated information from a credit report.
Whenever someone applies for a credit card, a personal loan, insurance, or even a job, there is a very good chance a copy of their credit file was requested as part of that process. That report contains more than just payment history. It can include information such as past lawsuits, arrest records, and whether or not an individual has filed for bankruptcy. All of this information can help predict the risk of nonpayment someone presents 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 data: Equifax, Experian, and TransUnion. Perhaps the most important source of revenues for these companies is selling consumer credit reports to potential lenders, employers, and other businesses.
One of the essential roles of the Fair Credit Reporting Act was to ensure the accuracy of the information contained in these reports. Recent amendments to the FCRA now place the burden on reporting agencies to ensure the accuracy of the data they are compiling. The businesses that use these reports also have several responsibilities.
To protect the privacy of consumers, the FCRA has outlined only three ways that a reporting agency can furnish a credit report to anyone.
To be fair to consumers, the FCRA also outlines rules for removing of obsolete information from credit reports. Essentially, this is old information about the person's past payment history that may not currently apply. The types of information that need to be removed and the timelines for removal include:
There are three circumstances that serve as exceptions to the rules outlined above. The above information can still be reported after these dates if the consumer:
The FCRA also changed the way that credit bureaus could charge consumers for reports. Consumers are now entitled to a free credit report every 12 months from each of the three agencies.
In addition, consumers can also obtain a free report if any company has taken "adverse" action against them in the past 60 days. For example, an adverse action might be a credit card company that denies the applicant credit. If that happens, they have 60 days to request a free copy of their report.
This topic is discussed at length in our article: Free Credit Reports.
As part of their service to the commerce industry, all three bureaus have developed proprietary credit scores, typically based on FICO by Fair Isaac. These numerical scores help companies make faster decisions to extend someone credit, or require deposits for service.
For example, an electric company might do a quick credit check when a new customer requests electric service. If their credit score is below a certain threshold, they will likely ask for a deposit.
Credit bureaus are not obligated to provide credit scores. Consumers that want to obtain this information will have to pay a small fee of around $10 to $20.
Under the law, all credit reporting agencies are responsible for correcting inaccurate information appearing in their reports. If inaccurate information is found, the following six steps outline a process for correcting the report:
The mailing address and toll free telephone number for each of the three agencies appears below, as well as links to their websites:
P.O. Box 740241
Atlanta, GA 30348
Toll-Free Number: 1-866 349-5191
P.O. Box 9532
Allen, TX 75013
Toll-Free Number: 1-888-EXPERIAN (888-397-3742)
P.O. Box 1000
Chester, PA 19022
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