The Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) was originally passed in 1970 to protect consumer rights related to credit. The U.S. Federal Trade Commission (FTC) is now responsible for enforcing the terms and conditions of The Fair Credit Reporting Act. The FCRA sets guidelines for the collection and reporting of consumer information between consumer reporting agencies, individuals, lenders, and employers. All parties involved work to preserve the integrity of creditor information.

Consumer Reporting Agencies

Consumer reporting agencies (CRAs) serve as the intermediary between consumers, lenders, and employers. The CRA collects financial and personal information that is applicable to consumers and disseminates the data to interested parties. Americans will recognize the three major consumer-reporting agencies as Equifax, Experian, and TransUnion. The aforementioned consumer reporting agencies are not to be confused with credit rating agencies Standard and Poor’s and Moody’s that are more so instrumental to the functioning of financial markets.

Collecting Consumer Information

The basic credit report carries information related to address, employment, lawsuits, arrests, and most importantly, financial transactions dealing with credit. Lenders generally furnish information to credit bureaus monthly.

Total consumer credit will be categorized into type, creditor, individual amount and payment history. Credit reporting agencies will then use Fair Isaac Corporation models to generate a FICO, or credit score, to determine an applicant’s credit worthiness.

Distributing Consumer Information

Lenders, employers and even insurance companies analyze the credit information of prospective borrowers, employees, and clients. Interested parties review credit reports to determine the risk levels associated with doing business with particular individuals. Financial institutions will routinely check credit reports, prior to approving loans and setting interest rates for mortgages and car payments.

Insurance companies and employers have also emerged to check personal credit reports as an indicator of character. An unfavorable credit report may very well be the difference between who out of two highly qualified candidates actually receives a job offer.

Correcting Errors

Credit report errors may be due to either misreported information out of lenders and banks, or outright and fraud and identity theft at the hands of scam artists. Criminals often use the Internet as a tool to steal personal information and open up accounts that go unpaid. Erroneous credit reporting will lead to higher interest rate charges or the rejection of loan applications.

Consumers should view reports from all three major credit-reporting agencies to reconcile information and check for errors. Consumers will contact the CRA and information furnisher in order to dispute any false data.  Equifax, Experian, and TransUnion all supply online correction forms to help people file disputes.

Your Rights as A Consumer

The Fair Credit Reporting Act was originally intended to protect consumers by influencing financial institutions to gauge default risk, irrespective of race or gender. Americans maintain rights to ensure that information is reported accurately and on time.

The Federal Trade Commission has set guidelines limiting the amount of time that bankruptcies and liens can remain upon an American’s credit report. Further, disputes must be addressed, proven or disproven within 30 days.

The FTC has also established mandatory language that must be communicated by lenders to consumers – notifying them in regards to adverse decisions. Information furnishers must issue statements to consumers before and after submitting negative information to credit reporting agencies.

The U.S. Government allows Americans to access one free credit report per year through Annualcreditreport.com.