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

Carla Ayers5-minute read

May 17, 2022

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When you apply for a mortgage, the lender will look at your credit report to determine your creditworthiness. The terms you are offered will depend on your income, how much debt you have, and your credit history. So, it’s important to pay attention to what your credit is telling lenders and creditors.

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 is shared with others. Read on to learn more of the nuts and bolts of the Fair Credit Reporting Act and how it helps protect your credit.

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What Is The Fair Credit Reporting Act?

The FCRA is a consumer protection law that governs how American consumer's credit history is accessed and used by lenders, employers and other third parties who may need access to this information. It also ensures that credit reporting agencies, including the main credit bureaus, Equifax®, ExperianTM and TransUnion®, are transparent and accurate in the way they collect consumer credit information.

The FCRA was passed in 1970 to help ensure fairness, accuracy and privacy of personal information contained in the files of credit reporting agencies. One of the main provisions provided by the act is how sensitive consumer credit information is obtained, how long it is kept, and how it is shared with the public.

The FCRA gives consumers the right to know what is in their file. A “file disclosure” is a document that outlines all of the information a person may have in their file with a consumer reporting agency. Consumers are entitled to one free file disclosure every 12 months from each nationwide credit bureau and specialty consumer reporting agency. This allows consumers to review their file disclosure once a year and report any discrepancies they may find.

Mortgage lenders must consider your credit score when deciding whether to approve you for a home loan, so they will need to access your credit report and will be subject to the rules outlined in the FCRA. For example, a mortgage lender requests a potential borrower’s credit report to evaluate their risk in lending a substantial amount of money to the applicant. The mortgage lender has a legally permissible purpose for inquiring about the credit history of the applicant. 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 Consumer Financial Protection Bureau and the Federal Trade Commission work together to enforce and uphold the various components associated with 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 to do so.

As credit ages, negative credit information will begin to “fall off” your credit report. This is because the FCRA limits the length of time negative credit information can be reported. Credit rating agencies must remove negative credit information after 7 years and bankruptcies after 7 – 10 years depending on the type of bankruptcy filed.  

There are stiff fines in place should someone knowingly and willfully obtain information from your credit report from a credit reporting agency under false pretenses. Each violation could carry a fine of $100 – $1,000. If damages are incurred, the actual and punitive fees may also be included in addition to attorney’s charges.

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Consumer Rights Under The FCRA

The FCRA outlines several provisions to help protect consumers when it comes to how their credit is accessed and by whom. These rights ensure that consumer credit information is reported accurately and in a timely manner. Below is a summary of those rights and provisions.

  • 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 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 are the victim of identity theft and place a fraud alert in your file.
    • Your file contains inaccurate information due to fraud.
    • You are on public assistance.
    • If you are 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 with a “permissible purpose” like landlords, creditors and insurance companies. For example, if a mortgage lender wants to see your credit report, you must provide consent.
  • 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 whether the information is correct by contacting the company that provided the information. The agency must investigate the dispute unless it is deemed frivolous.
  • Consent must be provided to employers. 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 are 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 are entitled to know why. The lender, creditor, employer or insurance company must provide the name, address and phone number of the agency that provided the information to them.
  • You have the right to freeze your credit. Placing a security freeze on your credit report will ensure potential lenders cannot check your credit report without providing a specific one-time PIN or you lift the freeze prior to their inquiry.
  • 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 is provided for free.
  • Provides the right to seek damages. If a consumer reporting agency or a user of the information they provide violates the FCRA, consumers can sue in state and federal court for damages.

Many states may enforce the FCRA and have their own consumer reporting laws, so you should make yourself familiar with your state’s law if applicable. Identity theft victims and active-duty military personnel have additional rights.

The Bottom Line

Knowing what information is being reported and who’s accessing your credit report are vital to maintaining good credit. With the FCRA backing you up, disputing discrepancies and protecting your credit doesn’t have to be a chore. Take the time to review your annual credit report for accuracy and report any information that is incorrect or out of date. Having a clean and accurate credit history is crucial when preparing to purchase a home. If you’re ready to take the next step in your home buying journey, start the preapproval process with Rocket Mortgage.

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Carla Ayers Headshot

Carla Ayers

Carla is a freelance writer and Realtor® with a background in marketing, communications and property management. She attended Eastern Michigan University where she received a Bachelors in Arts Marketing and a Masters in Integrated Marketing & Communications.