The Fair Credit Reporting Act protects your interests by governing how credit reporting agencies gather, protect and share your information. The FCRA includes provisions about who can request your credit report and how you can access it.
The legislation was created in 1970 to promote fairness, privacy and accuracy in the way credit was reported. Over the decades, it has been amended and expanded to provide more comprehensive credit-reporting protections, especially as identity theft concerns have risen. Given that it covers so many financial tools and services — from loans to credit cards and mortgages — it’s helpful to understand how this law works.
“Two protections that are most helpful to consumers are the provisions related to ensuring that consumer information included in a credit report is accurate and a set of provisions that cover how a consumer can protect themselves in a case of identity theft,” explains Adam Ragan, a partner with the law firm Fox Rothschild.
How the Fair Credit Reporting Act works
Credit reporting agencies compile reports that contain sensitive information about consumers’ financial history. These details can include how timely your credit card payments are and what kinds of loans you have outstanding. This information is helpful in proving your creditworthiness in a variety of contexts — but at the same time, you don’t want it available to just anyone.
The FCRA benefits lenders, consumers and credit reporting agencies by holding these organizations responsible for the accuracy and completeness of reports.
“The Fair Credit Reporting Act is an increasingly relevant and helpful tool from a consumer’s perspective,” says Ragan. “Consumers often become aware of the FCRA due to data breaches and alerts, as well as credit protections they’ve been enrolled in. But many consumers still struggle to understand the ins and outs of the process.”
What do credit reporting agencies do?
The three best known credit reporting agencies are Experian, TransUnion and Equifax, though there are other credit-reporting-related businesses that are smaller and specialize in areas like rental history records. These agencies collect information and compile a history of your use of credit into your credit report. Everything from on-time mortgage payments to credit card balance transfers could impact your credit report.
This report helps future lenders evaluate the level of risk they take on by extending you further credit. Others, such as landlords and employers, may use this report to understand your history of reliability and economic risk since they are entering into trust-based relationships by extending you a rental lease or job offer.
The Federal Trade Commission and the Consumer Financial Protection Bureau work together to uphold the FCRA’s various components, which put limits on what information can be shared with the credit reporting agencies and what they can share with anyone who requests your credit report. It also gives you access to your credit information and helps you dispute errors that damage your credit.
How the FCRA protects you
While the full text of the FCRA is available online, it’s long (and dense). The major provisions that you need to know about, however, are pretty straightforward. They are that:
1. You have the right to a free credit report every year
One of the valuable elements of the FCRA is that each of the three credit reporting agencies will give you one free credit report each year. The best way to access this service is to use annualcreditreport.com. And, right now, thanks to COVID-related enhancements, this site is offering free weekly access to your credit report. There are some sites that advertise free credit reports only to ask for payment later. Do not pay for a service you can receive for free.
This access is related to your broader right to know what’s in your credit reporting file. The FCRA protects these rights, making access to your own credit history easier and more transparent.
If you want more than one credit report in a year, the FCRA establishes a limit of no more than $13 per additional report, so keep that in mind.
2. You can dispute errors on your credit report
If your credit score is low because of an error on your report, you don’t have to accept that low score. You can provide evidence to disprove the error — for instance, showing you completed all payments on a loan or never missed a payment on a credit card. As you might imagine, keeping all paperwork associated with loans and credit cards in a safe place is an important step to take so you can clear up any errors on your credit report in the future.
Credit reporting agencies are required to evaluate the evidence you provide in a dispute and contact the related entities like lenders who provided that information. The FCRA also stipulates that they must restore your credit report if they find an inaccuracy because of the dispute. Most reports don’t contain errors, but they happen often enough that it’s worth checking out if you’re surprised by a low score.
Sometimes, the information is not inaccurate, but outdated. The FCRA makes rules for how long a credit reporting agency can include past negative information on your reports. In many cases, negative information can no longer be reported after seven years, or in the case of bankruptcy, 10 years. If you find accurate information on your report that is outdated, you can submit a dispute.
3. Employers need your written consent to pull your credit information
Credit reporting agencies, in most cases, must ask for your permission in the form of written consent before giving credit information to an employer or potential employer. This can offer you a little more control of information that is shared during a job hunt.
4. If your credit application is denied, you’re entitled to know why
Most people don’t think much about their credit score and report until they’re denied for a loan or credit card application. If you’re surprised by a denied application for credit, you’re legally entitled to hear why they denied your request. This is actually one way that people discover errors on their credit reports, so make sure you understand the reasons why you were denied credit. If it isn’t an error, this information can still help you make good decisions to grow your credit score in the future.
5. You have the right to freeze your credit and seek redress in cases of identity theft
Identity theft has become easier with the prevalence of the internet. High-profile data breaches, such as the Equifax data breach of 2017, highlight the need for continued vigilance and protections for consumers. A person’s credit could be ruined by someone who attempts to acquire loans or credit cards in the person’s name fraudulently.
“In 2018, a new provision implemented a policy to provide free security freezes,” says Ragan. “A credit freeze is helpful because it will prevent most companies from accessing your credit report until you request to remove the freeze.”
While security freezes can be removed by credit reporting agencies in isolated instances, and any current creditors may still have access to your credit information, this protection makes it easier to take immediate steps if you realize your information has been part of a data breach.
In addition, the FCRA has particular provisions for victims of identity theft, many of which you can access after initially obtaining an identity theft report.
“A great resource for consumers is the FTC website identitytheft.gov,” says Ragan. “There’s a step-by-step process by which a consumer can generate a report. That PDF can help borrowers obtain some of the specialized relief in the FCRA.”
