How the Fair Credit Reporting Act Protects You

By Susan Johnston Taylor on 2 February 2018 0 comments

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Your credit report plays an important role in determining whether you can get a loan, a credit card, insurance, an apartment, and even a job in some cases. It can also help determine how much interest you pay on a credit card or loan, and your insurance rate.

So, if your credit report contains errors — say, your report lists a loan you didn't initiate, an incorrect balance, or a closed account still being reported as open — that can result in a higher interest rate, or an outright rejection. Fortunately, the Fair Credit Reporting Act (FCRA) gives consumers protections, including the ability to access their credit reports and dispute errors on them.

Enacted in October 1970, just as small, local credit reporting agencies were consolidating and becoming a national presence, the FCRA imposes strict guidelines on consumer reporting agencies and the companies that feed them data. Understanding your rights under this law helps you stay on top of your credit and finances. Here's an overview of your rights under the FCRA and how to exercise them.

You have a right to see your credit reports

The act says that you're entitled to view your credit file from each of the three main credit bureaus (Equifax, Experian, and TransUnion) for free once every 12 months. You easily can do so at AnnualCreditReport.com. Just be sure you look at the web address closely if you type in the URL. Some copycat websites exist that may charge you for this service or may not be legitimate services.

If you're requesting your credit file online, you'll need to answer some ID verification questions to prevent scammers from posing as you. The online verification process can be frustrating to some consumers. "If they have thin credit files, a lot of those questions won't be pertinent," explains Linda Sherry, a spokesperson for Consumer Action, a national nonprofit that educates underrepresented consumers about their rights. If the website won't verify your identity and share your credit file, the alternative is to request information via the automated phone system or through the mail.

In addition to your three annual credit reports, you're entitled to a free annual copy of any reports from other types of consumer reporting agencies. These include agencies such as LexisNexis, CoreLogic, and Certegy Check Services, which may collect noncredit information about you such as your rent payments, insurance claims, or check-writing history. The Consumer Financial Protection Bureau has a list of more consumer reporting companies. Each one has its own procedures for requesting your free report. (See also: How Alternative Credit Data Can Help Those With Little or No Credit)

You have a right to ask for a credit score

The FCRA also gives you the right to request a credit score. Don't confuse that with a credit report. Credit scores and credit reports are not the same thing. The contents of your credit report determine your credit score, which can vary depending on which credit bureau supplies the information and which scoring model is used. In other words, you don't have just one score; you could have many different scores based on which factors are weighted more heavily.

Most credit agencies and other businesses charge you for your credit score and it's legal for them to do so. Fortunately, an increasing number of credit cards provide free credit scores so you may not need to pay for a credit score. (See also: FICO vs. Fakes: Are You Getting the Wrong Credit Score?)

Access to your credit report is limited

Credit reporting agencies may only share your credit record with people or institutions who have a legitimate reason to see it. Typically, that means someone who is considering your application for credit, insurance, housing, or a job, or who is a current creditor.

Potential employers and landlords generally need your written consent to check your credit. If a reporting agency shares your credit file with someone who doesn't have a valid need, it could be in violation of your rights under the FCRA.

You have the right to dispute errors on your credit reports

Once you receive a credit report, review it line by line for errors. "If you see something there that's labeled as negative that may be pulling down your score or your ability to access credit, look at it carefully and make sure it's accurate," says Sherry. (See also: How to Read a Credit Report).

If you don't recognize a line of credit or other loan, that could be a sign of identity theft, but don't panic. It could also be that you don't recognize the name of a creditor you actually did have an account with. Maybe you took out a store credit card and the issuing bank's name is unfamiliar to you (you'll likely see the name of the issuing bank, not the retailer where you opened the card). Or perhaps your mortgage was sold to a new loan servicer.

Google any unfamiliar creditors to check if the loan might be legitimate before you try to dispute it. If you still suspect identity theft, Sherry suggests filing a police report. (See also: 9 Signs Your Identity Was Stolen)

The FCRA also grants you the right to dispute any erroneous information you find with the credit reporting agency or agencies. They must investigate your dispute and respond (typically within 30 days) unless they deem your dispute frivolous.

To dispute an item with a credit bureau, mail the credit bureau a letter and copies of documents that support your position (for instance, a notice stating a loan is paid in full if your credit record is still showing an outstanding balance). The Federal Trade Commission (FTC) has this sample letter showing you how to dispute items on your credit report.

The FTC recommends sending dispute letters by certified mail, "return receipt requested." That way you have proof of what the credit reporting agency received and when. Also keep your own copies of your dispute letter and any supporting documents.

If the credit bureau corrects an error, it must send you a new, free copy of your credit report through AnnualCreditReport.com. That way you can check to see that all the mistakes have been corrected.

You can also dispute inaccurate information with the company that provided the information to the credit bureau. For instance, if a bank claims you defaulted on a loan that you know you paid in full, also contact the bank so that you don't have to deal with erroneous collections actions later on.

Starting in September of 2018, credit agencies will be required to send you a detailed report of their dispute investigation, providing you with contact information of the company or companies that supplied the data in question. The bureau will also have to explain what you can do if you're not happy with the investigation's findings.

Negative information can't stay on your credit record forever

It's helpful to understand the difference between negative and positive credit information. Late payments or accounts in default are negative factors on your credit report, while on-time payments and low balances reflect positively on your credit report. Positive items stay on the report up to 10 years after the date of the last activity on the account. But by law, credit bureaus cannot report negative information that is more than seven years old, except for some forms of bankruptcy, which may linger on your credit report for 10 years.

Sherry says negative items are typically labeled as negative on your credit report. But take heart. Negative information that's accurate won't haunt you indefinitely. What's more, the weight that lenders give to negative items they see on your credit report decreases over time. (See also: How to Rebuild Your Credit in 8 Simple Steps)

You have a right to know if you've been rejected because of information on your credit report

When a creditor, employer, insurer, or landlord denies your application based on the contents of your credit report, it's called an adverse action. They must then notify you and tell you the name, address, and phone number of the credit reporting agency that provided the information.

You're entitled to order a free copy of your credit report from the bureau that provided the information within 60 days of an adverse action. (This is in addition to the three free reports you're allowed every year.) However, it's wise to check your credit report in advance so you have time to correct errors before you get turned down for a mortgage or lose a job offer. (See also: Why Your Credit Card Application Was Denied — And What You Can Do About It)

You can take further action

If you've lost a dispute over your credit record and aren't happy with the result, you can file a complaint with the Consumer Financial Protection Bureau.

In other cases, you may be able to sue for damages in state or federal court.

  • You can sue a credit reporting agency (CRA) if they allow someone to view your credit report without a permissible purpose.

  • You can sue a CRA if you tell them about an error on your report and they fail to fix it and as a result, you receive an adverse action. While the CRA is investigating items you dispute, they must indicate on your credit report that the item is in dispute.

  • You can sue a credit information provider if they willfully provide incorrect information to the CRA.

  • You can sue an employer or other party who views your credit report without disclosing it to you or securing permission from you.

  • You can sue someone who pulls your credit report and doesn't dispose of your information appropriately, which results in your identity being stolen.

Lawyer Sonya Smith-Valentine says consumers sometimes get confused about their right to sue after they receive an adverse action. To be clear, you won't get awarded damages if the adverse action occurred before you notified the credit bureau. Many consumers don't realize this nuance, according to Smith-Valentine, who is president of Financially Fierce, LLC and a former managing attorney with Valentine Legal Group, which handled financial and consumer protection litigation.

"They tried to get a mortgage or a job and found out because of going through this that there was a mistake," she says. "They want to be compensated for losing out on the job or the house, but [the FCRA] does not allow for harm that occurred before you contacted the credit bureau about the mistake. That's where a lot of people get tripped up."

Your right to legal action doesn't kick in until after the creditor or credit reporting agency has been notified of an error and has had a chance to fix their mistake. All the more reason to be proactive about requesting your credit report and reviewing it for errors.

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