The Fair Credit Reporting Act (FCRA) is a U.S. Government legislation that ensures accuracy, fairness, and privacy when it comes to your credit reports. Instead of reading through the 115-page legislation, this article highlights the most important aspects that pertain to you as a consumer.
Having a good understanding of the FCRA can help you improve your credit standing in some circumstances. More importantly, knowing your rights can help prevent account abuse and misinformation on your credit reports.
History of the Fair Credit Reporting Act
To get a good idea of why the FCRA is so important, it’s vital to understand how credit operated in the United States before the legislation was made.
Life Before the FCRA
The year was 1970 and up until then, creditors and credit reporting agencies had been small community-based organizations. Mostly banks, retailers, and other local institutions. Each creditor and reporting agency focused on serving a particular consumer, and above all, their private members. Negative reporting was the standard.
Creditors within a town or city would come together every so often to discuss delinquent consumers, or at least those deemed delinquent by a member of the group.
Age, race, ethnicity, family lineage, and many other discriminatory means of appraisal were included when evaluating a person’s creditworthiness. Many of these subjective standards had little, if any, correlation to the consumer’s actual ability to repay a loan.
During this period, credit was starting to be discovered by the general public. A family could finally own a house by purchasing it on credit. Yet, there were no standards to determine whether your family might be approved for credit.
In many cases, it was a buddy system. You needed to know someone in the industry who could vouch for you. This did not please everyone, nor did it protect consumers from being strongarmed by their creditors with malicious hidden fees.
The Inception of the FCRA
As public outcry grew, it became apparent that the government would have to step in and lay down some sort of foundation to prevent outright abuse by large credit corporations on the less powerful individual consumers.
Enter the Fair Credit Reporting Act or FCRA for short.
The FCRA was the first of its kind to regulate the powerful creditor agencies and help level the playing field for the individual credit consumer.
The FCRA set forth the first standards for accuracy when appraising a potential consumer’s creditworthiness. It defined the proper legal access of an individual’s credit information, including what is to be included in a credit report.
Personal information, such as inherent characteristics and marriage choices, were no longer allowed to be measures of a consumer’s ability to repay a loan. Verifiable information that relied on data was introduced as the new norm.
A person’s history of paying bills was captured, so too was that person’s history of paying bills on schedule and financial details from their relationships with past creditors. The act also allowed consumers to dispute inaccurate, untimely, misleading, biased, incomplete, or unverifiable (“questionable”) information held by the creditors and credit reporting agencies.
The FCRA Protections Given To You As The Consumer
The FCRA has been amended throughout the years to include more protections for you as a credit consumer. In its current version, the FCRA provides the following protections:
Credit Bureau Responsibility To Report Accurate Information
All three credit bureaus (Experian, Equifax, and TransUnion) are responsible to correct and/or delete inaccurate, incomplete, and unverifiable information. This must be done within 30 days of them being aware of the problem. Usually, this means 30 days from the day they receive your dispute letter.
You will write a dispute letter when you see inaccurate, untimely, misleading, biased, incomplete, or unverifiable information on your credit report. We normally recommend sending these dispute letters in the mail instead of disputing items online. Why? Because disputing online requires you agree to certain terms and conditions that limit your ability to use the FCRA to your full benefit and advantage.
The credit reporting agency then has the legal obligation to provide due diligence and investigate the information.
The FCRA has established a maximum time period for which negative information can be shown on your credit report before it drops off of your report altogether. This ranges from seven years for most negative items, to ten years for bankruptcy.
Until recently, civil judgments appeared on a person’s credit history, but the sources of data for this information were deemed to be highly unreliable and the credit bureaus removed most of these negative items. You’ll want to check your credit reports to be sure no civil judgments show up and request they be deleted if they do.
Negative items do not need to appear on your credit report for their maximum allotted time. However, it is illegal for them to appear on your credit report past the maximum allotted time.
The positive information on your credit report is also set to roll off after 10 years from the last date of last activity on the specific account.
Restrictions On Public Access To Your Credit Information
The FCRA abolished the buddy system of passing along information and gossip about consumer creditworthiness.
Credit bureaus may only share your information with a person, or entity, who has valid reasons to need access to it.
These types of entities include the likes of credit companies, financial professionals, landlords, and potential employers. Valid reasons include rental leasing agreements, new credit card applications, car loans, and home loans among other options.
New employment opportunities may constitute a valid reason to verify your credit, however, your written consent is required before a potential employer may access your credit report.
Free Access to Your Credit Report
The FCRA entitles you to free access to your credit report on an annual basis.
More specifically, it entitles you to access your credit report held by the three major credit reporting agencies – Experian, Equifax, and TransUnion.
You are allowed one report per credit bureau every twelve months. It is common for consumers to access all three reports at once, although you could technically access one report from a different bureau every four months.
The website, AnnualCreditReport.com, was mandated by the U.S. government to be created for credit consumers, like you, to easily request their free credit files from the three credit bureaus. Just a reminder that your credit report does not include your credit score.
During the Covid pandemic, credit bureaus are allowing consumers free access to their credit reports on a weekly basis. That is set to end in April 2022.
Credit reporting agencies must take action when there is substantial suspicious activity on your report. It must add a 90-day fraud alert to your credit file when it identifies substantial suspicious activity. What constitutes substantial is a bit more subjective.
A fraud alert does not hurt your credit score. It simply alerts creditors to take extra steps when verifying your identity before issuing credit in your name. For example, a creditor may see the fraud alert and decide to call you on the phone number listed before processing your online credit card request.
The FCRA mandates that credit reporting agencies set up a seven-year extended fraud alert and remove your account from pre-screening credit marketing lists for five years in situations of identity theft. During such a period, you are eligible for free access to your credit report to monitor your accounts.
You are also eligible for free access to your credit report if you are on public assistance programs, you are unemployed and returning to employment within 60 days, or you have been denied credit due to negative information on your credit report.
If you apply for credit, a rental lease, or an employment offer that requires a credit check, and you are denied due to information listed on your credit report, the FCRA gives you the right to know that information.
In such scenarios, the creditor is obligated to share the name, address, and phone number of the entity that provided the negative information. You are then allowed a free copy of your credit report from that entity within 60 days of the denied application.
This is in addition to the free credit reports mandated annually.
Opt-Out of Marketing Lists
The FCRA does allow the credit reporting bureaus to give your name, address, and other contact information to different credit companies for marketing purposes. These credit companies then contact you with customized mail for credit cards, insurance, etc. You may have received quite a few of these communications in your mailbox.
If you no longer wish to receive these marketing communications, you are allowed to opt-out by removing your information from these lists.
To opt-out, you must call 1-888-5-OPT-OUT (1-888-567-8688) or go to optoutprescreen.com. By opting out, you prevent the major credit bureaus from sharing your contact details to creditors for five years. You may also permanently opt-out by completing an additional step.
The Maximum Accuracy Clause
The maximum accuracy clause is a major part of the FCRA and gives you a lot of negotiation power as a credit consumer if you know how to use it.
The FCRA mandates creditors and credit bureaus to report information with maximum accuracy. This clause has helped many credit consumers win lawsuits. These examples help illustrate how the maximum accuracy clause works.
You make your payments on time, every time.
However, when you are applying for a home loan, the financial representative sees your status as delinquent on your credit report. Your application is put on hold while you figure out why your account says you are delinquent.
You contact the credit reporting bureau to receive your free copy of the report and notice an account that claims to have been paid 30 days late. While this is not true, what is even more concerning is that it says your next payment was 90 days late.
That is impossible. If your first payment was 30 days late, then the latest your second payment could have been would be 60 days late.
The FCRA holds credit reporting agencies accountable to have controls in place to prevent accounting mishaps. You are eligible to sue the credit reporting agency for its negligence.
The more obvious the mistake, the more credible your lawsuit, and the more money you are entitled to. Negligence can become reckless negligence depending on the details.
Even if you do not decide to sue, it’s still worthwhile to know that you are not responsible for false or inaccurate information on your credit report – the credit bureaus and lenders are. It is, however, your responsibility and right to report inaccurate information that you find on your report.
You May Have Additional Rights Depending Where You Live
In addition to your federal rights, you may find that you have more rights under your state’s jurisdiction. For instance, states have individual statutes of limitations that set limits on the length of time a creditor, and/or collector, has to legally collect a debt from you.
If you’re interested in seeing the statute of limitations on debt in your state, check out this state-by-state guide.
The Fair Credit Reporting Act emerged in 1970 to set standards for creditors and credit reporting agencies and is regularly adjusted by government regulators to address consumer protection needs. It introduced legislation that protected credit consumers, prevented subjective arguments from being made against a person’s creditworthiness, and ensured that credit reporting agencies are held responsible for negligent behavior.
The maximum accuracy clause is perhaps the most empowering tool for credit consumers to ensure they are being dealt with fairly by their creditors and reporting agency. In addition to the federal act, each state has legislation governing fair credit practices.