In 1970, the U.S. government passed the Fair Credit Reporting Act in order to protect consumers from willful or negligent inaccuracies on their credit reports. It seeks to promote the accuracy, transparency, and fairness of credit reporting by granting consumers a set of specific civil rights. The document itself is over 100 pages long, but have no fear! We’ve summarized the main points below:
1. You must be notified if information in your report has been used against you.
Anyone who has denied you a loan, mortgage, employment position, or apartment on the basis of your credit information (or otherwise used your credit information against you) must tell you and give you the name, address, and contact information of the agency which provided the information. This makes it easier for consumers to detect anomalies in their credit report due to negligent reporting or identity theft, especially since credit reports are constantly changing and consumers only have the right to one free report annually.
2. You have the right to know what is in your report.
Consumers are entitled to a free credit report from each of the credit bureaus every 12 months, and can make their request through AnnualCreditReport.com. Additional reports may be requested at a small fee from the credit bureaus. You can also access your free report in special circumstances, such as reporting identity theft or fraud on your credit files.
3. You have the right to request a credit score.
Considering its impact on your financial present and future, it’s only fair that you have access to your credit score. However, FICO scores (the most widely used model of credit scoring) are generated by a private-sector company which requires a fee of $15 upon request. Beware of sites offering free credit scores, as the information they provide is often incomplete or insufficient and requires a fee of $20 or more to correct or complete.
4. You have rights to dispute any information you believe to be wrong or incomplete.
So you’ve requested your free credit report and found some inaccurate information which is dragging your score down. This is a fairly common occurrence, actually: in a 2013 study, the Federal Trade Commission found that 5% of consumers found inaccurate information on their credit reports, and 1 in 20 participants in the study saw their score increase more than 25 points once their report was corrected. You have the right to dispute any inaccurate information on your report and the reporting agency responsible for the mistake is required to investigate your dispute.
5. Any inaccurate, incomplete, or unverifiable information must be either removed or corrected by the reporting agency.
In that same study, 4 out of 5 participants who filed disputes with reporting agencies over inaccurate information saw some change to their scores. And although reporting agencies don’t have much incentive to watch out for mistakes before you report them, if a consumer dispute is founded, they have 30 days to correct or remove the inaccurate information.
6. Any negative information must be removed from your report if it is outdated.
Negative information older than seven years or bankruptcies older than ten years must be removed from your report. Longer credit histories do produce more accurate scores, but any information older than seven years in most cases can be considered arbitrary and an inaccurate predictor of your future behavior.
7. You have rights to privacy.
Credit information can only be requested from reporting agencies by people or companies with a valid need, as specified by the FCRA. These usually consist of parties reviewing applications for credit cards, loans, mortgages, or insurance.
8. If employers want your credit information, they must first have your consent.
And by consent, we mean written consent. You’ll have to fill out a form which they will then have to provide to the credit reporting agencies.
9. You can sue violators in state or federal court.
Any entity or person who violates your FCRA rights, be it a reporting agency or a user of your credit information, is fair game. You have the opportunity to sue them in state or federal court and seek damages. Any suits filed in bad faith, however, could incur large penalty fees, so make sure you have a serious lawsuit on your hands before pursuing anything.
The government is still in the process of refining and expanding consumer protection laws like the FCRA in order to better safeguard consumers against what many see as an exploitative system. In fact, the credit bureaus receive more complaints than any other companies in the U.S. And worse, they aren’t exactly the most helpful or accommodating when it comes to fixing or admitting their mistakes.
Learn more about what the credit industry doesn’t want you to know about its predatory practices in the next installment of the Credit Crash Course Series: 5 Things You Think You Know About Credit.