Your credit history plays a vital role when you apply for a credit card or a loan, but can even impact your ability to get a job, certain professional licenses or an apartment. This makes it crucial that the information these reports contain is accurate.
Enter the Fair Credit Reporting Act (FCRA). This federal law ensures that credit bureaus, lenders, debt collectors and other entities that use consumer credit reports operate under strict guidelines. Additionally, the Act aims protects your privacy by limiting who can view your information.
Read on for a deep dive into the FCRA, its provisions and what these mean for consumers..
Table of Contents
- What Is the Fair Credit Reporting Act (FCRA)?
- Your Rights Under the FCRA
- The FCRA and Identity Theft
- The FCRA and Background Checks
What is the Fair Credit Reporting Act (FCRA)?
The Fair Credit Reporting Act (FCRA) is a federal law that was enacted in 1970 to regulate how consumers' credit information is collected, shared and used. It also gives consumers certain rights, such as the right to view and dispute information on their credit report.
What does the FCRA do?
The FCRA establishes what kind of information the credit bureaus can collect on consumers and who can access that data.
According to the law, some of the information credit bureaus (also known as consumer reporting agencies) can gather includes:
- Personal information (like your name, date of birth, Social Security number, home address and phone number)
- Credit account status (if its open, closed, in good standing or in default)
- Payment history of credit cards and loans
- Credit limits and balances
- Current and past employers
- Public records of bankruptcies and tax liens
- Collection accounts
- Credit inquiries by lenders
Beyond specifying the type of data bureaus can collect, the law aims to ensure that the information they gather is accurate. Its provisions give consumers the right to access their credit report at least once a year and dispute any errors or outdated information with the bureaus. If there are inaccurate or outdated items, the bureaus must review and remove them from the report.
The FCRA also limits the entities or individuals that can view your credit report and under which circumstances. While third parties can view your report, in most cases, they can do so only with a signed consent. Third parties that can view your data include:
- Lenders (such as banks, credit unions or credit card issuers) evaluating your account application
- Potential employers running background checks
- Landlords considering your rental application
- Insurance companies determining your coverage options and premiums
- Government agencies assessing requests for benefits or licenses
- Government agencies, provided they have a court order or subpoena
- Debt collection companies trying to collect a debt
- Utility companies
Lastly, the law sets timelines for the reporting of certain information. For instance, bureaus can’t report most negative information after seven years.
Why is the FCRA important?
The FCRA grants consumers rights that protect their privacy and help keep credit reports accurate and fair. Before the law was enacted, there were few data-collection regulations in place and consumers didn’t have a right to see their file or dispute mistakes.
Additionally, it’s been reported that, before the law, credit bureaus regularly gathered non-financial information on people, such as their sexual orientation, political affiliations and drinking habits. And there were no restrictions on who could see your report, which meant third parties could see it without your knowledge or consent.
Your rights under the FCRA
Here's a summary of your rights under the FCRA:
You have the right to know what's in your credit report
The FCRA originally stipulated that you could get a free copy of your credit report from the three major credit bureaus — Experian, Equifax and TransUnion — once every year. However, the bureaus recently announced they’ll be offering weekly access permanently.
You can also get additional free copies of your report if:
- You receive a notice that you were denied credit, insurance or employment based on your credit report
- There was an unfavorable change to your employment or credit terms, government benefits or insurance coverage
- You place an identity theft fraud alert on your credit file
- You are unemployed and will apply for employment within 60 days from the date of your request
- You receive public assistance
- Your state's laws specify you can request extra free copies
You can dispute inaccuracies or outdated information
If you find errors while reviewing your reports, you can file a dispute directly with the reporting agencies. Common credit reporting errors include loans that don't belong to you, timely credit card payments labeled as late and debts listed more than once.
You can file disputes online free of charge, or you can contact the bureaus by mail or phone to complete the process. For a step-by-step guide on disputing reporting errors, check out How to Dispute Your Credit Report.
Once you file a dispute, the credit reporting agencies have 30 days to investigate and remove (or correct) inaccurate items. However, keep in mind that the process can take longer if you don't provide enough information or evidence to validate your claim. In that case, you might need to submit a new dispute with additional supporting documentation.
Bureaus can't report outdated information
Credit reporting agencies must remove most negative information (such as charge-offs, late payments and collections) from your report after seven years. However, note that Chapter 13 bankruptcies can remain on file for ten years.
When checking your credit report, look out for outdated items and file a dispute if you find any. (For more information, read How to Remove Negative Items From Your Credit Report.)
Access to your credit report is limited
Credit bureaus can only share your credit report with entities that have a "permissible purpose," as defined by the law. Permissible purposes include:
- Lenders evaluating credit applications or reviewing existing accounts
- Insurance companies underwriting policies
- Government agencies reviewing eligibility for benefits or licenses
Landlords and potential employers can also look at your credit report as part of a background check process, provided you give them written consent to do so.
You can know your credit score
You have a right to know your credit score, which creditors and landlords regularly use to determine your creditworthiness. However, credit reports don’t include it, so you might have to pay for it.
Here are some ways you can get your score:
- Some of the best credit cards, banks and credit unions include it for free on your monthly bill, or allow you to access it through your online account
- Create an account through a free credit-scoring website, like Credit Karma
- Purchase it through myfico.com, the official website of the FICO credit scoring model
- Sign up for a credit monitoring plan directly with the bureaus or through one of the best credit monitoring services
- Some of the best identity theft protection services offer credit monitoring, which typically includes your credit score
Before purchasing your credit score or subscribing to a service, it’s important to verify which type of score you'll get.
The two most popular credit scores offered are FICO Scores and VantageScores; however, note that most lenders typically rely on FICO Scores when making approval decisions. Also, both credit score models have several versions, so the score you check might be different from the one used by a third party to evaluate your creditworthiness.
You can opt out of prescreened credit offers
Credit reporting companies regularly provide major lenders with limited credit data about consumers, which lenders can then use to send prescreened offers.
When you receive a prescreened offer, it typically means you met specific criteria (such as a minimum credit score or income) that improves your chances of being approved if you apply for the advertised product. However, note that a prescreened offer doesn’t guarantee approval, since lenders conduct a more detailed review of your financial information once you submit a formal application.
You can opt out of receiving prescreened offers for five years through OptOutPrescreen.com. You can also withdraw permanently, but this option requires printing, filling out and mailing a form that's available on the same site mentioned earlier.
You have a right to seek damages
If a consumer reporting agency, lender or other entity violates your rights under the FCRA, you may be able to sue in state or federal court.
The FCRA and Identity Theft
In addition to the rights listed above, the FCRA provides specific guidelines and protections to help identity theft victims restore their credit history and prevent further damage:
- You can ask credit bureaus to place a fraud alert on your report. Fraud alerts are free and let lenders know they should take extra steps to verify your identity before opening an account in your name.
- Service members can set up an active duty alert while deployed, which is similar to a fraud alert and lasts one year.
- Once you set up a fraud alert on your file, you're entitled to receive free copies of your credit reports (in addition to the weekly copy consumers are entitled to).
- Lenders must provide copies of documents relating to fraudulent transactions or accounts opened using your personal information.
- Debt collectors must furnish information (such as creditor and debt amount) on collection accounts opened by scammers using your data.
- Once you file an identity theft report, you can ask lenders to stop reporting information from a fraudulent account to the credit bureaus. Additionally, you can ask the bureaus to block the negative information from appearing on your file.
- You may place a security freeze on your credit reports. Freezing your credit prevents third parties from accessing your file until you lift the credit freeze.
Note that reporting agencies and creditors might ask you to provide a police report before complying with some of these provisions. You will probably also need to fill an identity theft report from the Federal Trade Commission (FTC) through IdentityTheft.gov. Check out this guide for more information on How to Report Identity Theft.
The FCRA and Background Checks
The FCRA considers pre-employment and tenant background check reports to be consumer reports, similar to credit reports, because they contain personally identifying information collected by a third party and are used to assess a person's eligibility.
The law sets the following guidelines for background checks conducted for employment purposes:
- Employers must get your written permission before conducting a background check.
- Employers must inform you in writing that they might use the background check findings to make employment decisions (the notice must be a separate document from the job application).
- Employers running investigative reports (those based on personal interviews with acquaintances) must inform you about your right to request a summary of the scope and nature of the report.
- If an employer decides not to hire you based on a background check, they must provide a pre-adverse action letter and include a copy of your report and your rights.
- The employer must provide the name and address of the agency that handled the investigation and notify you that you have the right to dispute the report if necessary and get an additional free report from the reporting company within 60 days.
Keep in mind that landlords who run background checks must also comply with the FCRA and follow similar steps as employers, such as obtaining written consent from tenants.
What is the Fair Credit Reporting Act? FAQs
What is the purpose of the Fair Credit Reporting Act?
When was the Fair Credit Reporting Act initially enacted into law by Congress?
Who enforces the Fair Credit Reporting Act?
Who is the FCRA designed to protect?
Summary of What is the Fair Credit Reporting Act?
The Fair Credit Reporting Act (FCRA) was created to ensure consumer credit reporting agencies (like Equifax, Experian, and TransUnion) collect and provide correct information about individuals.
The law stipulates several guidelines to help guarantee the accuracy of credit reports. For example, you are entitled to a free credit report from each reporting agency, and if you find mistakes or outdated information in your file, you can dispute them.
The FCRA also protects your privacy. Only certain entities, like mortgage lenders, can view your credit report if they have permissible purpose under the law. In most cases, they also need your written consent before accessing your file.
These provisions help protect your personal and financial information and guarantee that those with access to it use it fairly.