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The Fair Credit Reporting Act is a federal law that restricts who can access your credit report. It gives you the right to obtain your credit score and credit report. The Fair Credit Reporting Act also prohibits creditors from sharing false information about your creditworthiness.Passed by Congress in 1970, the Fair Credit Reporting Act, or FCRA, protects information collected by credit bureaus. It allows you to obtain a security freeze that prohibits consumer reporting agencies from disclosing your credit report to creditors without your consent. Below we highlight the legal provisions and purpose of the FCRA.
What Is the Purpose of the Fair Credit Reporting Act (FCRA)?
The purpose of the FCRA is to empower consumers and regulate how consumer reporting agencies handle and report information about a consumer’s creditworthiness. Congress passed the law to help ensure that credit reporting is fair, accurate, and respects a consumer’s right to privacy.Equifax®, Experian®, and TransUnion® are the major consumer reporting agencies that collect information on consumers and sell that information to concerned parties. Lenders and credit card issuers, for example, may buy your credit report from a consumer reporting agency whenever you apply for credit.The FCRA restricts who can access your credit report and gives you the right to know what information is contained in your credit report file. You may also request your credit score under the FCRA and dispute any inaccurate information in your credit report.Recommended: 5 Steps for Checking Your Credit ScoreThe FCRA also impacts creditors who voluntarily report information to the credit bureaus. The law prohibits credit card companies, banks, and other furnishers from reporting bogus information about a consumer’s credit account history if they know the information is false.
What Are Your Rights Under the FCRA?
Here’s a summary of your rights under the FCRA:
The right to be told if information in your credit report has been used against you.
The right to know what your credit report file says about you.
The right to ask for your credit score.
The right to dispute false or misleading information in your credit report.
The right to opt out of prescreened offers of credit or insurance.
The right to obtain a security freeze on the release of your credit report.
The right to seek damages if your FCRA rights are violated.
How Does the FCRA Work?
The FCRA works by setting ground rules on credit reporting. It allows creditors to report accurate consumer data to a credit bureau and prohibits credit bureaus from sharing your credit report with anyone not authorized to see it.If you have a credit card, for example, your creditor may voluntarily report information about your cardholder account to credit bureaus, including your account balance. Any late payments, missed payments, or other defaults on your account may also appear on your credit report.All consumer reporting agencies, including the credit bureaus, are prohibited from sharing your credit report with unauthorized persons. You have the right to access your own credit report, and creditors may access your credit report if you apply for their consumer lending products.If you apply for credit cards for good credit and get denied, the FCRA generally requires the card issuer to notify you of the adverse action. Derogatory information in a credit report must generally be removed after the information becomes seven years old. Bankruptcy filings must be removed after 10 years.
How Does the FCRA Help Borrowers?
The FCRA helps borrowers by giving them the right to obtain their free credit report every 12 months upon request. Obtaining your credit report and reviewing it for accuracy can help you understand your credit history and lets you investigate whether your file is accurate.As mentioned earlier, the FCRA gives you the right to dispute any false or misleading information in your credit report. Accessing your credit report also allows you to observe the underlying data behind your credit score.Failing to pay your bills on time could hurt your credit score. The FCRA, however, helps borrowers by requiring most derogatory information in a credit report file to be removed after seven years.
8 Basic Rights Under the FCRA
Here is an overview of your basic rights under the FCRA:
1. Credit Report Access
You have the right to access your credit report. You may obtain your free credit report from AnnualCreditReport.com every 12 months upon request.
2. Protected Access
The personal information in your credit report is protected from unauthorized disclosures. You may place a security freeze on your file to prohibit a consumer reporting agency from releasing your credit report to creditors without your consent.
3. Accuracy
You may dispute any inaccurate information contained in your credit report. Whenever you file a dispute with a consumer reporting agency, the agency must investigate your dispute within 30 to 45 days and inform you of its findings shortly thereafter.
4. Remove Outdated Information
A consumer reporting agency must remove derogatory information from your credit report once the information becomes outdated. Any failure of the consumer to pay overdue child support, for example, must be removed from the consumer’s credit report once the information becomes more than seven years old.Most adverse or unfavorable information in a credit report must be removed after it becomes more than seven years old. Any bankruptcy information in a credit report, however, must be removed after the information becomes more than 10 years old.
5. Private Medical Information
Any private medical information in your credit report file is protected from unauthorized disclosures. Creditors are generally prohibited from obtaining or using your medical information when determining your eligibility for credit.
6. Personal Account Numbers
Credit card or debit card transactions must generally not include your full card number on the printed receipt. Any electronic or printed receipt provided to the cardholder at the point of sale may include no more than the last five digits of the card number.
7. Damages
You may demand damages if anyone violates your FCRA rights. Violators of the FCRA may face civil liability to the consumer in federal court.
8. Credit Scores
As mentioned earlier, you have the right to obtain a credit score from a consumer reporting agency. The consumer reporting agency must comply with your request and provide comprehensive details about your credit score. The statement, for example, must highlight any key factors that adversely affected your credit score.
Does the FCRA Accomplish What It Aims to Accomplish?
Yes, the FCRA accomplishes what it sets out to do, which is to ensure fairness and accuracy in borrowers’ credit profiles, in addition to protecting borrowers from inaccuracies in their credit reports.Common errors or inaccuracies that may occur include mixing up files, failing to dispute an item on your report, reporting old or inaccurate information, and releasing your credit report to an unauthorized person.If this has happened to you, you can sue the individual or company who violated your rights and collect for damages.
Other Laws That Protect Borrowers
Here are other laws that protect borrowers:
The Truth in Lending Act
The Truth in Lending Act, also known as the TILA, is a federal law that protects consumers from unfair or deceptive lending practices. Congress passed this legislation in 1968 as Title I of the Consumer Credit Protection Act. It requires lenders to disclose credit terms in a clear manner, including annual percentage rates of interest, fees, and charges.
Equal Credit Opportunity Act
The Equal Credit Opportunity Act, also known as the ECOA, prohibits discrimination in any aspect of a credit transaction. This law reinforces the rights of consumers, small businesses, corporations, partnerships, and trusts to have equal access to credit.
Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act, also known as the Consumer Financial Protection Act of 2010, established the Consumer Financial Protection Bureau to help protect consumers from unfair, deceptive, or abusive acts and practices and from discrimination.
Military Lending Act
The Military Lending Act bans creditors from giving members of the U.S. armed forces or their dependents any consumer credit product that charges more than 36% in annual percentage rates of interest. Any creditor who violates the Military Lending Act’s 36% APR cap could face criminal fines and imprisonment up to one year.
Finding the Credit Card That's Right for You
Knowing your credit score can help you with finding the credit card that’s right for you. Subprime borrowers may consider credit cards for fair credit or credit cards for bad credit. Consumers with poor credit or no credit history may consider cards for credit building, while consumers with good or excellent credit may consider applying for any rewards credit cards that may offer cash back or other incentives.
The Takeaway
The Fair Credit Reporting Act requires consumer reporting agencies like Equifax, Experian, and TransUnion to be fair and equitable to the consumer. Federal regulators and state regulators may enforce the FCRA to help protect consumers and prevent the publication of inaccurate information in a consumer report.You can preview credit cards on Lantern by SoFi and explore possible options for building credit. You may compare different cards and apply with the creditor of your choice.
Frequently Asked Questions
What is the purpose of the Fair Credit Reporting Act?
What are your rights under the Fair Credit Reporting Act?
How does the Fair Credit Reporting Act work?
What is the FCRA update for 2023?
What is a violation of the Fair Credit Reporting Act?
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Photo credit: iStock/filadendron
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About the Author
Sulaiman Abdur-Rahman
Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and served as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.
