Earning good credit should be at the top of everyone’s financial to-do list. But to maintain good credit for the long haul, it’s crucial to understand your consumer rights. Knowing the rules when it comes to credit reporting can help you protect the great credit rating you worked so hard to earn.
The consumer protections you should be most familiar with are spelled out in the Fair Credit Reporting Act, or FCRA. The FCRA is the chief federal law that safeguards your credit information. It makes sure that your credit reports remain fair, accurate, and private.
What Is the Fair Credit Reporting Act?
Congress passed the Fair Credit Reporting Act in 1970. In the decades that followed, Congress has amended the FCRA several times to add additional protections for U.S. consumers.
Prior to the FCRA, consumer reporting agencies (like the credit bureaus and others) had a lot of freedom when it came to the reporting and selling of consumer information. Unfortunately with that freedom, consumers too often got a bad deal. To help put a stop to unfair treatment, the FCRA set up rules that these companies had to follow.
In addition to consumer reporting agencies like Equifax, TransUnion, and Experian, the FCRA gave data furnishers new rules to follow as well. Data furnishers are companies that share account information with a consumer reporting agency.
You can’t stop a credit bureau or another consumer reporting agency from collecting information about you. As frustrating as that fact may be, it was true prior to 1970 and remains true today. In the United States, the three major credit bureaus each maintain files (full of consumer credit information) on some 220 million people.
Yet although the FCRA doesn’t put a stop to data collection, it does regulate what the credit bureaus and others can do with the information they gather.
How the FCRA Protects You
There are many ways that the Fair Credit Reporting Act and its amendments protect consumers — too many to detail in a single article. Below are five of the most important rights the FCRA affords you.
1. Most negative credit information has an expiration date
Your credit reports are full of details about how you have managed your financial obligations — both the good and the bad. Negative information can take a serious toll on your credit scores. The good news is that late payments, charge-offs, collection accounts, repossessions, bankruptcies, and most other derogatory information can’t stay on your credit reports forever.
The FCRA places the following credit reporting time limits:
- 7 years: Most negative items remain on your credit reports for up to seven years. Collection accounts, late payments, charge-offs, foreclosures, and repossessions all fit into this category. Chapter 13 bankruptcies also drop off credit reports seven years from the date of discharge.
- 10 years: Chapter 7 bankruptcies can stay on your credit reports for up to 10 years from the filing date.
- No limit: Debts you owe to the government may not have a credit reporting time limit. So, defaulted federal student loans may remain on your credit reports indefinitely. In the past, certain public records like unpaid tax liens were also in this category. However, a settlement between the credit bureaus and more than 30 state attorneys general created the National Consumer Assistance Plan and removed all tax liens from credit reports.
- 2 years: When someone accesses your credit reports, it’s called a credit inquiry. Not all credit inquiries are negative, but some (called hard inquiries) may hurt your credit scores for up to 12 months. The credit bureaus have to list employment-related inquiries on your credit reports for two years. Most non-employment inquiries must stay on your reports for at least a year. In general, the credit reporting agencies keep all inquiries on your credit reports for two years.
If a negative item is still on your reports once the FCRA credit reporting statute of limitations has passed, you can ask the credit bureaus to remove it. (See #3 below for details.)
2. You can check your personal credit reports
The FCRA gives you the right to know what’s in your credit file. In fact, a 2003 amendment to the FCRA, known as the Fair and Accurate Credit Transactions Act (FACTA), grants you free annual credit reports upon your request.
You can visit AnnualCreditReport.com to request a free credit report from each credit bureau — Equifax, TransUnion, and Experian — once every 12 months. In certain situations, like if you’re turned down for a credit card or loan or if state law requires it, you may be able to request additional free reports as well.
Through April 2021, the three major credit bureaus will let you access your credit reports for free once a week in response to the Coronavirus crisis.
You can also access your files from other consumer reporting agencies, not just the credit bureaus. For example, ChexSystems is a consumer reporting agency that financial institutions use when you apply for a new checking or savings account. You can request a free annual FACTA report from ChexSystems online, over the phone, or through the mail.
3. You can dispute credit report errors
One of the reasons it’s important to check your three credit reports often is to make sure they are accurate. Credit reporting mistakes happen every day. A Federal Trade Commission (FTC) study discovered mistakes in 25% of consumer credit reports.
Inaccurate information on your credit reports can unfairly lower your credit scores. Such credit errors might also make it tough to qualify for new financing, like credit cards or loans.
The FCRA gives you options if you discover suspicious information on your credit reports. You can dispute errors and mistakes on your credit reports. The credit bureaus will accept disputes via mail, online, or over the phone.
It’s best to send disputes to the credit bureaus through certified mail with a return receipt requested.
When you submit a dispute, be sure to include all of the relevant information the credit bureau will need to process your request. Consumer disputes should include:
- Your full name
- Personal information (Social Security number, date of birth, address, telephone number, etc.)
- Details about the account you’re challenging (creditor name, account number, etc.)
Once your dispute is received, a credit bureau generally has 30 days to investigate your claim. If you’re successful, the offending account will be updated or erased from your credit report.
However, the investigation might not work out in your favor, in which case the account would be verified and remain on your credit report. You can always follow up with another round of consumer disputes if you disagree with the outcome. You can also submit a complaint to the Consumer Financial Protection Bureau (CFPB).
4. If someone uses your credit information against you, they have to tell you
Many companies use credit reports to decide whether or not to do business with you. Lenders and credit card companies commonly use the information in your credit reports to help set the rates and terms of financing that you’re offered. Even employers may check credit reports (with your written permission) when you apply for a new job or position.
Good credit history can help you in these situations. However, negative information in your credit file may work against you.
Thanks to the FCRA, if a company uses a consumer report to deny your application or to take adverse action against you (like offering you a higher interest rate than advertised), you have the right to know. A company should give you the name of the consumer reporting agency from which it ordered your report, including contact information for that agency so you can request a copy of your report to review if you wish.
5. Only certain businesses can access your credit reports
The credit bureaus are in the business of collecting information about you and selling it to others. But they can’t sell your credit reports to anyone they please. The FCRA limits who can access consumer credit information.
Per the FCRA, a business needs a “permissible purpose” to purchase a copy of your credit report. Here are some situations where companies with a valid need can access your credit reports:
- Lenders, credit card issuers, insurance companies, and others can access your credit reports as part of a credit-related transaction. This generally happens when you apply for financing or services.
- Employers can request your credit reports. You must give written permission anytime a business checks your credit for employment purposes.
- Current creditors can access your credit reports. Credit card companies, for example, may check your credit reports and scores once a month. This practice is known as account maintenance.
- Collection agencies can request your credit reports for debt collection purposes. When a debt collector checks your credit, it’s called skip tracing.
- You can access your personal credit reports anytime. Fees may apply depending on the situation and where you request your reports.
- Companies that wish to make you a “firm offer of credit or insurance” can access some of your credit information, like for pre-qualification offers. In the United States, your permission isn’t required for this type of credit access. However, you can revoke the credit bureaus’ ability to sell your information for marketing purposes by visiting OptOutPrescreen.com.
It’s wise to monitor your credit reports for fraudulent access. If you discover credit inquiries from companies that you didn’t authorize, it could be a sign of identity theft.
The FCRA is full of protections that can help you keep your credit reports in the best shape possible. When you understand your rights, it’s easier to take action if problems arise.