A Guide to the Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act is an important law that defines your rights as a consumer regarding your credit report, among other things.

Planning on applying for a loan any time soon? Chances are you’ll have to share your personal information with your potential financial institution. This is a usual part of the application process.

But you have every right to be wary of sharing your personal information. How much of your information can financial institutions see when you apply for a loan? And what can they do with your personal information after they access it?  

The answers to these questions and more can be found in the Fair Credit Reporting Act.

What is the Fair Credit Reporting Act?

The Fair Credit Reporting Act — or FCRA, for short — is a federal law which regulates the way your credit information may be collected, used, accessed, and shared.

How Does the Fair Credit Reporting Act Work?

Like many federal acts and regulations, the FCRA may be complicated to comprehend. Luckily, you don’t have to go cross-eyed reading legalese to understand what your rights are as per the FCRA.

The FCRA can be broken down into three main sections:

  1. What information credit reporting agencies collect and share
  2. How, when, and who can look at this information
  3. Your rights as a borrower

Under what’s called the Furnisher’s Rule, the FCRA also governs companies and financial institutions that supply or furnish information to these agencies.

1. What Information Goes in your File?

The FCRA provides requirements for the kind of data credit reporting agencies may add to your report. The three major credit reporting agencies are Equifax, Experian, and TransUnion, as well as smaller agencies that may collect and store your information.

According to the FCRA, some of the following information may be included in your file:

  • Contact information, including present and previous addresses
  • Current debts
  • Employment information
  • Past loans
  • Payment history
  • Public records, such as bankruptcies

When you apply for a loan, financial institutions use this information to determine your creditworthiness and see if you can qualify for a loan or a line of credit.

2. Who is Allowed to See Your Report?

Another important aspect of the FCRA regulates the people or companies that may take a look at this data. Generally, only those who have a legitimate reason to determine your creditworthiness may check your credit.

This may include:

  • Financial institutions: They may check your consumer credit file when they’re reviewing your application for a personal loan or a line of credit.
  • The government: State- and federal-level governments may see your report if you’re applying for some government-issued licenses. They may also look at your file in response to a court order or federal grand jury subpoena.
  • Auto insurance companies: Some insurance providers may use parts of your consumer file to generate a credit-based auto insurance score that helps them set premiums and coverage.
  • Employers: Some employers may check the credit of candidates, but they may see a truncated version of your report and not your full score.  
  • You: Yep, you! You may check in on your own credit at least three times each year for free.

3. A Summary of Your Rights under the Fair Credit Reporting Act

Below, we’ll outline some of the rights you have under the FCRA.

You have the right to:

1. Access Your Report

Every year, you’re entitled to one free credit check from each of the three big credit reporting agencies - Equifax, Experian and TransUnion. Simply visit AnnualCreditReport to get started.

It may be a good idea to use all three checks in order to keep track of your score throughout the year.

You may also access one additional free copy of your credit report during any 12-month period if you meet any of the following requirements:

  • Your application for a personal loan or line of credit was denied because of the information in your file. This is only valid within the past 60 days.
  • You’re unemployed and plan to search for work within the next two months.
  • You receive public assistance.
  • You’ve placed a fraud alert on your file.

2. Accurate Reporting

Checking your report regularly is just one of many tips for protecting your credit score and history. It may give you a chance to know what should and shouldn’t be in your file, so you might be able to spot anything that is impacting your credit score unfairly.

If a check reveals something amiss in your report, you have the right to dispute any errors or inaccuracies. Credit reporting agencies generally must review your dispute within 30–45 days of receiving your claim. 

If their investigation shows the inaccurate information was added to your file in error, the error must be removed from your file.

select focus on pair of black glasses resting on stack of papers

3. Freeze Your Credit

If you suspect your personal information has been compromised, you have the right to place a security freeze on your file. It restricts access to your consumer file, making it impossible for a financial institution to review and assess your creditworthiness.

Normally, this would be a problem if you apply for a loan which requires a credit check. Without this access, you’ll likely have your application denied.

But if you’re a victim of identity theft, your information may have been used by a fraudster to apply for loans or lines of credit. In that case, this freeze is beneficial as it thwarts their attempts to open new accounts in your name.

4. Know When Your Information is Used Against You

Whenever a financial institution denies your application for a new account because of something in your credit file, you must be informed. Usually, this information can be found in your rejection or declination letter.

5. Limit Access to Your File

A person or institution can only access your file if they have what’s called a “permissible purpose”. This means they need to have a legitimate reason to review your information.

smiling woman sitting at table holding phone to her ear in right hand and holding white coffee cup in her left hand

6. Have Outdated Information Removed

Negative entries in your credit file generally have a lifespan of about seven years, after which they must be removed from your report. The only exceptions are bankruptcies, which can sometimes last for 10 years.

7. Protect Your Information

Have you ever noticed your receipts never show your full credit card number? Or how your Social Security Number is shortened on your report?

This is intentional. It’s a way of protecting your account numbers, keeping this information confidential.

Read the Law Yourself

Of course, this is just a quick summary of your rights under the FCRA. Click here to visit the Federal Trade Commission for more information.

What to Do if Someone Violates Your Rights

The law is in place to make sure someone doesn’t misuse your information. And like any law, there may be consequences when someone breaks it.

If you think an individual or company has violated these rights, get in touch with the credit reporting agencies right away. Explain how you think your rights have been misused and let them know how you expect them to make it right.

What is the Purpose of the Fair Credit Reporting Act?

Some people and institutions may need to check your credit information. And what they see helps them make decisions that may have an impact on your finances.

Ultimately, having some regulation on how and when these companies can access or use your file — as well as what information they get to see — protects you.

For example, whenever you apply for a personal loan or line of credit, a financial institution may use your consumer credit file to determine your creditworthiness. It helps them decide if they’ll approve your request for a loan.

In other words, the contents of your file may have an impact on the variety of loans or lines of credit you qualify for.

But your consumer file goes beyond your loan application options.

For example, if an employer uses credit checks, they may use your file to determine whether you’re the right person for the job.

The FCRA ensures that the credit information provides an accurate look at your finances so that your creditworthiness is determined fairly.

As a whole, they give you privacy over your personal information and agency over your credit history. Understanding these rights is an important step towards financial literacy that may help you take control of your credit.

Make sure you understand your rights under the FCRA; review your consumer file often and dispute any inaccurate information that you see.

Disclaimer: This article provides general information only and does not constitute financial, legal or other professional advice. For full details, see CreditFresh’s Terms of Use.

Posted in: Credit Score