There are certain types of consumer protection available to everyone in the U.S. Knowing and understanding these can help ensure that you know your rights in various situations.
One such consumer protection is the Fair Credit Reporting Act.
If someone does a background check on you for employment, tenant screening, or something covered by the FCRA, they must follow what it outlines.
As a side note, doing an online search of someone’s public records doesn’t necessarily fall under the regulatory umbrella of the Fair Credit Reporting Act, as long as you’re not using the information you find to make a decision that’s covered.
Below, we detail what every consumer should know about the Fair Credit Reporting Act and its implications for them.
What is the Fair Credit Reporting Act?
The FCRA is a federal law regulating how consumer credit information is collected. The Act also regulates access to credit reports. The regulation was passed initially in 1970 to promote fairness, accuracy, and privacy regarding personal information that credit reporting agencies kept in their files.
Primarily, the Act governs how a credit bureau can collect and subsequently share information about consumers.
Businesses frequently check credit reports for different purposes, such as when they’re deciding whether or not to make a loan to someone or sell them insurance.
The FCRA outlines certain rights to consumers, such as the ability to access their own credit reports for free.
What Is a Credit Reporting Agency?
Credit reporting agencies are businesses that collect information about the financial and credit histories of consumers.
If you apply for a home loan or a credit card, your credit history is going to determine not only whether or not the lender decides to extend financing to you at all, but if so, the terms of your loan, like the interest rate you’ll get.
There are three primary credit reporting agencies in the U.S. which are Experian, Equifax, and TransUnion.
The data these three bureaus collected is used as a compilation for the calculation of your credit score.
If you’ve gotten any kind of consumer credit, your lending information will have been reported to at least one of the three bureaus. The bureaus receive their information from other companies. Those companies are called data furnishers.
Data furnishers will send information about their customers’ accounts.
Some of the information they send might include the current balance and your on-time payment history. Companies aren’t required to submit information like this to credit bureaus—they do it voluntarily.
Credit bureaus also look at public records to find bankruptcy records and utility payments, but these agencies don’t include personal demographic information like your religion, race, or income.
Since the information is so important for lending decisions, you have the right to make sure everything your credit report contains is accurate. Under the Fair and Accurate Transaction Act or FATA, consumers can request a free copy of their credit report every 12 months.
- Equifax is a data and analytics company that operates in dozens of countries, tracking consumer and business credit reports. Equifax also offers identity theft and credit monitoring services.
- Experian is also in dozen countries and has a history dating back more than 125 years.
- TransUnion expanded to credit monitoring in the 1960s, and it doesn’t track business credit scores, unlike Equifax and Experian.
How Does the FCRA Work?
The FCRA’s rules cover how consumer credit information is obtained and kept and how it’s shared with other people, including the consumer. The two federal agencies that oversee and enforce the Act’s provisions are the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB).
The Act describes all the data that bureaus are allowed to collect, including past loans, current debts, and bill payment history. The information may also include present and previous addresses, employment information, arrest records, whether they owe child support and if they’ve filed for bankruptcy.
The law limits who can access a credit report and under which circumstances they can see it. For example, if you apply for a loan like a car loan or mortgage, lenders can request a report. If you’re applying for an insurance policy, the insurance company can access your credit report.
The government can request a report in response to a subpoena or if someone is applying for certain licenses issued by the government.
An employer can request an applicant’s credit report, but the applicant has to give them written permission.
Your Rights As a Consumer
Along with the requirement that you’re entitled to one free credit report every three months from each of the three big credit bureaus, other rights consumers have include:
- You have the right as a consumer to verify the accuracy of a report when it’s used for employment.
- The FCRA stipulates consumers must receive notification if information obtained from their file has been used against them when they apply for credit or other transactions.
- Consumers have the right to dispute information in their report that’s not accurate or incomplete.
- There is a requirement that outdated negative information is removed. This is seven years in most cases, but with bankruptcies, it’s after ten years.
- You have access to your report, but others have restricted access. Access is limited to people with what is described as a permissible purpose, which includes landlords, insurance companies, and creditors. Again, if an employer wants to look at your credit report, you have to give written consent. Employers have to meet other requirements, and not every state lets an employer pull a credit report as part of doing a pre-employment background check on an applicant.
- You have the ability to put a security freeze on your credit report. If you decide to do so, potential lenders can’t check your credit report without you lifting the freeze or providing the lender with a one-time pin that will allow them to access it.
Other Things to Know
Beyond what’s above, the following are more details and other things to know about the Fair Credit Reporting Act.
- Credit bureaus are required to limit access to your information. Permissible purpose is something discussed above, and it’s not optional. Some of the individuals and organizations with permissible purposes include lenders and creditors you’re applying for credit with, lenders who are going to pre-qualify you, existing creditors, and debt collection companies. Insurance companies, employers or possible employers, rental companies, phone and utility companies, and some government agencies may also have a permissible purpose.
- If you think your report has incomplete or inaccurate information and you file a dispute with the bureau, it must investigate it within a certain amount of time. If the investigation determines the information you’re disputing isn’t accurate, or the information isn’t verifiable, the bureau is required to correct it or delete it from your report. If the investigation isn’t able to resolve the dispute, you can ask the bureau to put a statement on your credit report explaining the situation.
- If you don’t want pre-screen offers for things like insurance or credit cards, you can ask the credit bureaus to stop sharing your information. The credit bureau must remove your name from marketing lists if you ask them to.
- If you think you’re the victim of identity theft, you can then use your right to add a one-year fraud alert to your report for free. With fraud alerts, lenders and creditors have to take steps to verify your identity, like getting in touch by phone before they extend credit in your name.
- If you’re active-duty military, you can place a one-year alert to your file to protect you from identity theft.
- Every credit bureau has its own way of calculating credit scores, so you’re going to have several different ones. You can request your credit scores, but you may need to pay for them.
- If a lender denies you credit, they have to tell you what information they used and where they got it from. They have to provide you with the contact information of the credit bureau from where they got the information leading them to take adverse action.
- Every violation can have a fine of anywhere from $100 to $1000. If damages are incurred because of non-compliance with FCRA, actual and punitive damages might also be incurred. For someone who willingly gets information from a consumer reporting agency using false pretenses, criminal charges may apply.
Understanding your rights, broadly as a consumer, is important. You want to protect yourself financially and ensure that you’re not being treated illegally in any environment, whether you’re trying to rent a home, get a loan, or you’re applying for a new job.
The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) enforce the Fair Credit Reporting Act. If you think that someone has gotten access to your information in a way that goes against the Act, you can contact these organizations, and they can help you decide what to do next.
You should also make it a regular habit to check your credit report and take advantage of your right to a free report every 12 months. You’d likely be surprised by how often reports contain inaccuracies that need to be corrected.