Understanding The Fair Credit Reporting Act (FCRA): A Guide

When you apply for a mortgage, the lender will look at your credit report to determine your creditworthiness. The terms you’re offered will depend on your income, how much debt you owe, and your credit history. It’s also important to pay attention to what your credit is telling lenders and creditors when applying for a credit card or an apartment lease.

The Fair Credit Reporting Act (FCRA) makes it possible to see how lenders and creditors view your credit history. It’s a federal law that governs how information is collected and reported about consumers. The FCRA also dictates how long information is kept and how it’s shared with others. Let’s dive into the nuts and bolts of the Fair Credit Reporting Act and how it helps protect your credit.

What Is The Fair Credit Reporting Act?

The FCRA is a consumer protection law that governs how lenders, employers and other third parties access and use American consumers’ credit history. It also ensures that credit reporting agencies, including the main credit bureaus – Equifax®, Experian™ and TransUnion® – are transparent and accurate in the way they collect consumer credit information.

Federal agencies such as the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) work together to enforce and uphold components of the Fair Credit Reporting Act. The FCRA requires a lender, insurance company, creditor and anyone else seeking your credit report to have a legally permissible purpose for doing so.

The FCRA was passed in 1970 to help ensure fairness, accuracy and privacy of personal information contained in the files of credit reporting agencies. The FCRA also governs specialty agencies, such as those that sell medical information, check-writing history and rental history.

One of the main provisions provided by the act is how sensitive consumer credit information is obtained, how long it’s kept and how it’s shared with the public.

Understanding ‘File Disclosure’

The FCRA gives consumers the right to know what’s in their file. A “file disclosure” is a document outlining all the information a person may have in their file with a consumer reporting agency.

Consumers are entitled to one free credit report every 12 months from each nationwide credit bureau and specialty consumer reporting agency. This allows you to review your file disclosure once a year and report any discrepancies and negative information you may find. Many consumers rely on AnnualCreditReport.com for their free credit report.

Example Scenario Of Third-Party Access

Third parties can have legitimate reasons to access your credit reports. For example, mortgage lenders must consider your credit score when deciding whether to approve you for a home loan, so they’ll need to access your credit report and will be subject to the rules outlined in the FCRA.

This helps the mortgage lender evaluate their risk in lending a substantial amount of money to the applicant. The mortgage lender has a legally permissible purpose for inquiring about your credit history if you’re looking to borrow money. The consumer provides permission for the lender to pull their credit report and understands their credit is being accessed for mortgage loan consideration.

What Are The FCRA Requirements?

The FCRA requires creditors to limit the length of time that negative credit information can be reported. As credit ages, negative credit information will begin to “fall off” your credit report after a certain period of time. Credit rating agencies must remove negative credit information after 7 years and bankruptcies after 7 – 10 years, depending on the type of bankruptcy filed.  

Stiff fines will be handed down if someone knowingly and willfully obtains your credit report information from a credit reporting agency under false pretenses. Each violation could carry a fine of $100 – $1,000. If you incur damages, the actual and punitive fees may be included in addition to attorney’s charges.

Consumer Rights Under The FCRA Laws

The FCRA outlines several provisions to help protect your rights concerning how your credit report information is accessed and who can access it. These rights ensure that consumer credit information is reported accurately and in a timely manner. Below is a summary of the rights and provisions that apply to nationwide consumer reporting agencies.

• You have the right to request a file disclosure. A file disclosure will include all of the information a reporting agency has available to them about you. You may be required to provide personal information, such as your Social Security number, to verify your identity. Consumers are entitled to a free file disclosure if:

• A person has taken adverse action against you because of information obtained from your credit report.
• You’re the victim of identity theft and place a fraud alert in your file (In cases of identity, you may need to grant law enforcement authorities access to your information.).
• Your file contains inaccurate information due to fraud.
• You’re on public assistance.
• You’re unemployed but intend to apply for employment within 60 days.

• The FCRA provides and restricts access to your credit report. Access is limited to people and entities with a “permissible purpose.” Examples of such people and entities include landlords, creditors and insurance companies. So, you must provide consent if, let’s say, a mortgage lender wants to see your credit report.
• You have the right to dispute errors on your credit report. If you find inaccurate information on your credit report, you can file a dispute with the credit bureau that provided the report. That credit bureau will then confirm with the relevant furnishers of information whether the information is correct. The agency must investigate the disputed information unless it’s deemed frivolous.
• Employers must get your consent to review your information for employment reasons. Consumer reporting agencies may not give information to your current or potential employer without your written consent.
• The FCRA allows consumers to opt out of prescreened offers of credit. If you’re tired of prescreened offers for credit, you can call 888-5-OPTOUT (888-567-8688) or submit a request online at OptOutPrescreen.com to limit the amount of credit solicitation you receive.
• You must be told if information in your file has been used against you. If your application for credit, employment or insurance is denied, you’re entitled to know why. The lender, creditor, employer or insurance company must provide the name, address and phone number of the agency or issuer that provided the information to them.
• You have the right to freeze your credit. Placing a security freeze on your credit report will ensure that potential lenders can’t check your credit report without providing a specific one-time PIN or you lifting the freeze prior to their inquiry. A freeze doesn’t apply to collection agencies or entities that consumers have an existing account with if they request your information to review or collect on your account.
• You have the right to ask for a credit score. You can request a numerical credit score from consumer reporting agencies that create or distribute numeric scores used in residential property loans. You may have to pay for the score, but in some cases, it’s provided for free.
• You have the right to seek damages. If a consumer reporting agency or a user of the information they provide violates the FCRA, you can sue in state and federal court for damages.

Many states may enforce the FCRA and have their own consumer reporting laws, so it’s best to get familiar with your state’s laws, if applicable. You can also contact your state’s attorney general, whose office can help you take action against errors in your consumer credit report. Identity theft victims and active-duty military personnel have additional rights.

The Bottom Line: Get To Know Your Rights Under The FCRA

Put simply, federal law governs who can access your credit report without your permission. In some cases, you’ll need to grant permission for entities to review your credit report. Crucially, the FCRA grants you the right to review your information and dispute potential inaccuracies.

Monitoring your credit report regularly is a smart way to protect your financial information. Get the Rocket Money℠ app and discover how it can help you enjoy the full benefit of your rights under the FCRA.