What is the Fair Credit Reporting Act (FCRA) and How Does It Affect You?

There was a time when we held little power over our credit history or how our private information was accessed or distributed. We had few rights and little say in how companies compiled our credit reports. Heck, we couldn’t even access our reports easily to see what information they had.

 But that started to change in 1970 when Congress passed the Fair Credit Reporting Act.

The Fair Credit Reporting Act (FCRA) is a federal law that protects the privacy of consumer information and promotes fairness and accuracy of the files of credit reporting agencies. 

The FCRA gives consumers rights, including access to their credit reports and the ability to file disputes if they notice any errors on their reports.

The FCRA was created to give consumers access to credit reports and regulate the collection of their personal information. Through my research, I’ve learned a lot about the FCRA and why it is as necessary today as it was in 1970. So, let’s take a look at its core principles, and you can learn how it protects consumers during their credit journey. 

The Fair Credit Reporting Act was introduced and reshaped how consumer information has been regulated and accessed since then. Today, we as consumers have the right to access credit reports and enjoy more privacy of our personal information because of FCRA.

Below, I’ll dive deeper into the core principles of the FCRA and why the act is important for consumers with credit goals.

The Purpose of the FCRA

Like most federal acts, the Fair Credit Reporting Act brought necessary change. It gave us long-awaited protections and rights that were needed to avoid different types of harm across the financial sphere, including in lending, employment, and rental housing. 

Before the FCRA passed, consumers and their credit information were often vulnerable to errors, which could affect their daily obligations. Consumers couldn’t access their credit reports, but businesses and employers had free range — no permission necessary. Unfair, right?

Zero access to credit reports also meant consumers couldn’t spot inaccurate information and challenge the reporting. That led to the possibility of consumers being penalized for inaccuracies while shopping for lines of credit.

Inaccurate reporting can carry lasting, damaging effects that can spread beyond loan or credit card approval and into your rental housing opportunities. I’ll share an example. 

Imagine you send in an application for a new rental listing and the landlord requests to review your credit report. Your credit report deems you have low creditworthiness because you missed several payments on one account. The landlord then refuses your application based on that data. 

But the thing is, those missed payments weren’t verified. Since you can’t view your credit report, you can’t dispute the inaccuracy of that credit account. 

The Fair Credit Reporting Act introduced legal requirements and standards to support the accurate reporting of consumer credit information and protect consumers from unjust damage. 

The FCRA enables users to file disputes and requires credit reporting agencies and furnishers to investigate their claims. 

Not only does it allow you to dispute inaccurate information, but it also prevents unauthorized entities from accessing your reports. In the past, credit reporting agencies could share your reports with employers and other third parties without your permission. But thankfully, for us, that’s not the case anymore. 

Here is an overview of the rights you receive under the FCRA:

• The right to access your credit reports to verify your information
• The right to dispute inaccuracies and have credit bureaus correct or verify the dispute 
• The right to know whether you’ve been denied credit due to information on your file
• The right to remove outdated, negative information from your report after seven years

The FCRA covers the scope of credit reporting, bringing legal requirements throughout the journey, so consumers don’t have to suffer the consequences of credit report errors. If you’ve ever tried to get a loan with a negative error on your report, you know the type of consequences I’m talking about. 

Who the FCRA Impacts

The Fair Credit Reporting Act impacts everyone involved in the credit approval process, including credit reporting agencies, lenders, and consumers. 

Because of the FCRA, lenders and other third parties seeking your credit report must have a legally permissible purpose to view your credit history. That means credit reporting agencies can’t release your credit report to just anyone, protecting your privacy. A major win for us, in my opinion. 

The FCRA gives consumers more control over who sees their credit reports and what information they can access.

While it placed restrictions on lenders and CRAs, the FCRA gave consumers more freedom and flexibility regarding their credit responsibility. How so? Well, you can now take action in regard to the information listed on your credit report and use your credit report to inform your financial journey — a right we didn’t have before 1970. 

The FCRA also impacted employers. Employers must seek consent from job applicants or employees before requesting their credit reports. They can only request a report for internal employment purposes only and must notify the individual whether they took adverse action, such as denying their application, due to their credit report.  

Thanks to Congress, we have the FCRA, which gave us rights and protections to improve and safeguard our financial health. Without it, we would be less informed and have less say in the handling of our credit history. But how so? 

Below, I’ll delve into the specific rights and protections the FCRA offers to consumers while emphasizing the practical implications for your financial health.

Establishes Your Right to Obtain Free Credit Reports

Let’s take a deeper look at how the FCRA helps consumers when it comes to credit reports. 

The passing of the FCRA established the consumer’s right to access credit reports. Although consumers received several rights and protections under the FCRA, none could be more important than the right to obtain their credit reports.

Credit reports play such a significant role in our financial lives. They help us understand our credit standing, identify areas to improve, and determine our creditworthiness before diving into new financial opportunities. 

You can also visit AnnualCreditReport.com to access your credit reports from all three bureaus every week. Prior to 2020, consumers could only receive free credit reports once a year.

The credit bureaus changed this policy to include free weekly reports during the COVID-19 pandemic and extended it to give consumers more frequent updates to maintain their credit over time.  

The FCRA also made it possible for us to obtain free credit reports, so we can stay informed about our own financial history. There is more than one way to find your credit report online. You can go straight to the source by signing up with one of the three major credit bureaus to view your report. 

Ensures the Accuracy of Your Credit Information

The FCRA promotes the fairness and accuracy of credit reporting. To ensure accuracy and fairness, the FCRA provides consumers with the right to dispute inaccurate information and know whether they have been denied credit due to information in their files. 

Inaccuracies can cause unjust damage to your credit reputation, prompting you to lose out on favorable credit terms or a financial opportunity altogether. By filing a dispute, you can prevent unfair judgment by your lender and ensure you receive a fair approval process while credit shopping. 

With the right information on your credit report, lenders can make fair credit decisions based on actual data to determine your creditworthiness and offer you the proper loan terms. 

Inaccuracies can appear in different forms across your credit report. They can include everything from outdated personal information to errors in your credit account reporting. 

Under the FCRA, credit reporting agencies are held responsible for the investigation of your disputes. If you check your credit report and see outdated or inaccurate information, you can file a dispute with the credit bureau. By doing so, you can have the error either updated, deleted, or verified. 

You can send a dispute claim via email, phone, or online. While you can file a dispute with a credit bureau, you can also do so with a data furnisher. 

A data furnisher is an institution that reports to credit bureaus, which includes credit card issuers, lenders, and other financial entities. 

You will need to have relevant documents on hand to confirm the inaccuracy. You won’t have to wait too long for a response. The FCRA requires resolutions a 30-day threshold for resolutions. For example, the credit bureau Experian completes the entire process within 30 days and offers you updates along the way. 

Limits Who Can Access Your Data

Privacy can feel scarce these days. But FCRA helps with that by preventing the undue invasion of privacy for consumers. 

Through my research, I’ve learned that the FCRA’s legal standards regulate who or who can’t access consumer data. Only those with a valid need, based on FCRA standards, can access your data. 

By limiting access, the FCRA puts some control back into the consumer’s hands. Under the FCRA, you have the right to authorize who views your personal information for certain purposes. 

In most cases, you must initiate contact or an agreement with a lender before a credit bureau can release your report. So your permission would be required for a lender or employer to view your credit history. 

But there are instances where potential lenders and insurers can request to view portions of your credit report without your permission. They can do so to facilitate their prescreening process. 

If your credit experience is anything like mine, you’ve received many pre-approved credit offers in the mail over the years. If you have, you were most likely prescreened by the credit card issuer. By accessing parts of your report, creditors can decide whether to send you unsolicited offers for credit or insurance. 

However, you can stop creditors and insurers from accessing your credit report. The FCRA allows you to opt out of prescreening by phone at 1-888-5-OPTOUT (1-888-567-8688) or online at OptOutPrescreen.com.

The FCRA also requires lenders and other third parties to provide a specified reason as to why they want to pull your credit report, further limiting the possibility of privacy breaches. Anyone who obtains a credit report under false pretenses will be fined $100 to $1,000 for each violation.

Credit reporting agencies are major players in the financial services industry. So much so that they help facilitate the process of lending and storing consumer credit information. CRAs hold precious information in their hands, and the FCRA makes sure they handle it with the utmost care. 

In this section, I’ll explain the duties and responsibilities of credit reporting agencies as mandated by the FCRA and focus on how they handle consumer data.

Changes to How Agencies Collect and Store Data

The FCRA regulates the types of information credit reporting agencies can gather and store. CRAs can collect information on your bill payment history, past loans, current debts, present addresses, and employment history, among other data. 

But the FCRA created limitations on what negative data CRAs can report. CRAs cannot report outdated, negative information about your credit or criminal history. Any negative credit information, such as delinquencies, beyond seven years old can not be listed on your credit report. 

Here is a chart of some of the most common negative items and how long they can stay on your credit report:

Bankruptcies that are more than 10 years old are also not allowed to be reported. As for arrest records, the threshold can differ by state, but it should not exceed the governing statute of limitations for the crime. 

The FCRA also limits to whom CRAs can release your data. Credit reporting agencies can only release your information to lenders or insurers that have permissible purposes. 

Obligations to Provide Accurate and Complete Information

Credit reporting agencies are required to provide accurate and complete information about a consumer’s credit history. 

Inaccurate information can cause consumers to miss out on financial opportunities and harm their financial health. The FCRA protects consumers by ensuring agencies report only accurate information. 

If a reporting agency discovers inaccurate information, it is obligated to update your credit report. All agencies must verify, correct, or remove outdated or inaccurate information within 30 days of a dispute.  

And you can help the reporting agencies by viewing your report regularly and bringing erroneous information to their attention.

Handling Consumer Disputes

Credit reporting agencies can’t leave you out in the cold if you discover inaccurate information on your credit report. They have the legal responsibility to investigate your claims and verify whether your information is inaccurate or not. 

CRAs are obligated to assist you and your creditor with the dispute investigation and resolution. The FCRA mandates that all outdated or inaccurate information must be verified, corrected, or removed within 30 days. 

Credit bureaus are required to update your information based on the resolution of your dispute. If your information is verified as accurate, the credit bureau will continue to report your information as is. 

The passing of the Fair Credit Reporting Act helped enforce equity and fairness across the financial industry in regard to credit reports and consumer rights. Without it, you and I wouldn’t have much say in our credit data privacy or the liberty to view our reports. 

The FCRA played a crucial role in how we now manage our personal credit and financial journeys. We can now access our credit reports and dispute inaccurate information, so we can make the best of our financial opportunities. Information is power, and the FCRA  places valuable information in our hands.