What Is the Fair Credit Reporting Act?

Highlights: 

• The Fair Credit Reporting Act (FCRA) is an important piece of federal legislation that aims to protect consumers against unethical actions related to credit reporting.
• The FCRA affords a consumer certain protections regarding their credit report.
• You can report any violation of your legal rights under the FCRA to the Consumer Financial Protection Bureau (CFPB).

The Fair Credit Reporting Act (FCRA) is an important piece of federal legislation that promotes the accuracy, fairness and privacy of information in the files maintained by consumer reporting agencies (CRAs). This includes the three nationwide CRAs — Equifax^®, TransUnion^®, and Experian^®.

What are the FCRA’s requirements?

Under the law, nationwide CRAs are required to:

• Provide copies of your credit reports to you upon request
• Let you dispute information you believe to be incomplete or inaccurate
• Correct inaccuracies or incomplete information related to your credit reports
• Remove negative information from your credit reports after a certain time period
• Limit who can access your credit reports
• Allow you to opt out of pre-screening offers for credit and insurance
• Place a security freeze on your credit reports upon request

Lenders are required to:

• Provide justification to CRAs when seeking your credit reports
• Work with CRAs to remove false information on your credit reports
• Notify you when they deny you credit

How does the FCRA impact loans?

The FCRA affords a consumer certain protections regarding their credit report. Let’s walk through how the FCRA may help better protect your credit reports should you apply for a loan.

• Before your loan application. Say you want to buy a house and you’re in the market for a mortgage. The first thing you’ll probably do is seek out your credit scores and request copies of your credit reports. You can get free credit reports from the three nationwide CRAs at AnnualCreditReport.com. In some mortgage transactions, you will receive credit score information for free from the mortgage lender.
  
  Once you have a copy of your credit report from one of the nationwide CRAs, you can review it for incomplete or inaccurate information. Suppose you find errors such as a falsely recorded missed payment, closed accounts listed incorrectly or information that you believe is the result of fraud. The FCRA allows you to dispute any inaccuracies with the relevant CRA. If the information is determined to be incorrect, it must be removed from your credit report, usually before a 30-day deadline.
   
• During your loan application. When it comes time to apply for a loan, the FCRA regulates how information is recorded on your credit reports. In most cases, missed payments, defaulted loans and other negative information that may hurt your creditworthiness are removed after seven years.
  
  So, if for example, if you missed a mortgage payment 10 years ago, a prospective lender will likely not see this information during the application process for a new mortgage. And because you’ve taken the time to correct any errors, you can be confident that the lender is looking at a credit report that’s a true reflection of your financial behavior. The FCRA ensures that only authorized companies such as your mortgage lender can view your credit reports.
   
• After your loan application. Once your lender has reviewed your credit report and your mortgage application, it’s time for them to make a decision. If they deny you the loan, the FCRA requires the lender to provide you with written justification.
  
  This is what’s called an adverse action notice, and it applies to any negative judgment based on information from your credit reports.
   

Important things to remember about the FCRA

The FCRA provides important safeguards against predatory practices in the collection of financial data. Here are some key things to remember about your rights under this legislation:

• Check your credit reports for accuracy. Make sure you review your credit reports regularly, paying special attention to incorrect information. As noted previously, you’re entitled to one free credit report annually from each of the three nationwide CRAs at AnnualCreditReport.com.
• Dispute errors. If you find any inaccuracies, no matter how small, dispute them. You can file a dispute on your Equifax credit report by creating or signing into a myEquifax account. It’s important to remember that disputing information with one of the nationwide CRAs may not impact information on credit reports from the other two.
• Maintain your privacy. Only those with a legitimate reason for access are allowed to see your credit reports.

What to do about FCRA violations

You can report any violation of your legal rights under the FCRA to the Consumer Financial Protection Bureau (CFPB) at consumerfinance.gov/complaint. The CFPB and the Federal Trade Commission (FTC) are the two government agencies responsible for investigating potential FCRA infractions, which may result in fines, legal action or even criminal charges.