What consumers need to know about the Fair Credit Reporting Act, FCRA
You may already be aware that there are laws which protect consumers’ credit. But how exactly do they work and in what circumstances can these laws be used? The Fair Credit Reporting Act (FCRA) is a law which is used to promote fairness, accuracy and ensure information privacy in consumers’ files found in reporting agencies. The law ensures that consumers’ credit reports have accurate and updated reports and if not so, you are allowed to make the necessary changes.
Before the law was passed, there were acts of discrimination in banks and other lending institutions and they could either lend or deny consumers a loan without any apparent reason. In fact, you could easily be denied credit based on your race, age, family and other factors that least determined whether you are able to repay the loan. The Fair Credit Reporting Act was therefore put in place to protect consumers against these bias acts.
Consumer rights under the Fair Credit Reporting Act
Under the FCRA, consumer reporting agencies are defined as companies that collect consumers’ credit information and sell this information to third parties. Third parties may be banks, alternative lenders or even employers. The three main credit reporting agencies in the U.S are Equifax, TransUnion, and Experian. So what are the rights that consumers have under the Fair Credit Reporting Act?
Right to access credit reports
As a citizen of the United States, you have the right to access credit reports and scores from all the three major credit bureaus. Consumers are provided with a free copy of their reports from credit reporting bureaus once every year. Although credit reports are issued for free on a yearly basis, you will be charged a small fee to access your credit score. Credit scores are numerical figures that represent a consumer’s creditworthiness and are usually based on the information in your credit report. But you can still receive your credit scores free of charge from a mortgage lender. Free credit reports should also be issued to a consumer:
- If he or she wants to look for employment in the next 60 days
- If a lender has denied your loan application or charged high-interest rate due to information in your credit report
- A consumer is on welfare
- A consumer is a victim of identity theft
- The inaccurate information in a consumer’s credit report is a result of identity theft
Right to protected access
Another right that consumers have under FCRA is protected access to information. This means that not every person is authorized to view your credit reports. Only those who have been granted permission, like banks, employers, credit lenders, and insurance companies can access your credit report information. Before the report is provided to an employer, you also have to give your consent in writing. This, however, does not apply to the truck industry.
Right to have any errors removed from your report
Besides knowing what is in your credit report, consumers also have the right to dispute any error made on their credit reports. If the reports have any inaccurate information, the reporting agency is required to remove the error. But it is also important to note that if the errors are valid, they won’t be removed from your report. Aside from protecting consumers against any negative information, there is also a time limit for the information to stay in your credit report. This helps prevent negative information from the past to affect your financial opportunities in the future. The information remains in the consumer’s credit report within a period of 7 years after which it is removed. However, in case of bankruptcy, this information can stay in your report for as long as 10 years and after that, credit bureaus won’t report any outdated negative item in your credit report.
Right to know if your credit report was used to deny you a loan, credit or employment
If you apply for a new loan or credit and do not qualify, you also have the right to know why you were denied. Consumers have to know whether their credit report information was used to determine whether they qualify for a loan or credit. You also should be notified if you were denied employment because of the information in your credit report.
The Consumer Financial Protection Bureau does not only protect consumers against incorrect information from credit reporting agencies. The laws also apply to companies that provide these details to the reporting bureaus. For instance, the business or lender should;
- Not report inaccurate information
- Correct any inaccurate information or update consumer information before sending it to the credit reporting agencies
- Inform the consumer about any negative information that was reported to the credit reporting agencies within 30 days
If you notice any negative information in your credit report, you have the right to dispute this information to your lender in writing. Once your dispute is received, the lender has to notify the credit reporting agencies who will suspend reporting this information until your issue is resolved.
Businesses should also have permissible purpose to view your credit report. For example, they can view your report when you have applied for a loan and they want to determine whether you are a risky borrower. The business, however should:
- Inform the consumer if they were turned down due to information in their credit report
- Provide the consumer with names and address of the credit reporting agency that supplied the information
How to deal with FCRA violations
If a business violates consumer rights under the Protection Act, you have the right to sue for the damages caused. There are also additional rights for active duty military personnel and identity theft victims.
How FCRA benefits the consumer
Consumers can sue for incorrect information in their reports, but this is only one of the many ways that FCRA helps protect consumer rights. You are also able to know why you were denied funding, and the steps that you should take to secure loans in the future. Having a negative item removed from your credit report will also help improve your credit score.