How Does The Fair Credit Reporting Act Protect Me?

How Does The Fair Credit Reporting Act Protect Me?

As you’ve no doubt figured out, your credit reports have a tremendous influence over your life. Good credit opens doors and makes it possible for you to save a ton of money on housing, financing and insurance. Bad credit on the other hand can make it difficult for you to secure a loan, rent a place to live, and even land a job.

Who Compiles Your Credit Reports?

In the United States there are three generally recognized “major” credit reporting agencies, although there are more. They are Equifax, Trans Union, and Experian. These so-called “CRAs” are in the information gathering business. They collect a record of your credit management behavior, primarily from lenders and other financial services companies. This information is stored in their respective credit file systems and, using sophisticated matching logic, is eventually compiled, scored and becomes your credit report when requested by a third party, called a “user.”

Lenders purchase credit reports from the CRAs to use when they are making decisions about extending credit to a new applicant, as well as for other reasons. Credit reports help lenders to more accurately predict the risk of doing business with you. If your credit reports have problems then a lender may decide that it does not wish to take you on as a new customer. On the other hand, if your credit reports indicate that you are a good credit risk then not only will most lenders want to approve your application but they may even offer you more attractive rates and terms. This is what is meant when you hear stuff like “underwriting, risk assessment or risk-based pricing.”

Who Makes the Rules?

Despite what you may believe, it’s not the Wild West. The CRAs are not allowed to act as they see fit when it comes to the creation and maintenance of your credit reports. Instead the CRAs’ actions are governed by numerous consumer protection laws, with the primary being a Federal statute called the Fair Credit Reporting Act (FCRA), which has been around since the early 1970s.

Further, it is important to understand that credit reporting is entirely voluntary and no lender or business is ever required by the FCRA to use a credit report or report anything to the CRAs. For that matter, the CRAs do not have to accept data from any lender or business. There is no right to have a credit report as a consumer and no right to have access to credit reports as a business. But the minute a company uses a credit report or reports information to the credit bureaus, they must comply with the FCRA.

A Summary of Your FCRA Rights

The FCRA is over 100 pages long so keep that in mind when reading any summary of the Act. Having said that, the FCRA does have its highlights.

Limits Regarding Who Is Allowed to See Your Credit Reports

The FCRA protects the privacy of your credit reports and there are limits regarding who is legally permitted access to your credit information. Some of the most common examples of those with a “permissible purpose” to access your credit reports include the following.

  • Insurance Underwriters
  • Lenders
  • Landlords
  • Existing Creditors
  • Anyone with a Court Order
  • Employers (with your written permission)
  • Any Party With A Legitimate Business Purpose
  • You!
  • Collection Agencies

Limits on How Long Negative Information Can Remain on File

Positive information can legally remain on your credit reports forever (although the CRAs have a policy of removing inactive positive accounts after 10 years). However, negative credit information comes with strict time limits under the FCRA, also called a statute of limitation. Here are a few examples of how long some common derogatory items are permitted to remain on your credit reports.

  • 7 Years: Most derogatory items have a credit reporting time limit of 7 years. Some items which are members of this 7-year club include late payments, judgments, foreclosures, repossessions, charge-offs, and collections.
  • 10 Years: Bankruptcies are generally required to be removed from your credit reports either 10 years from the filing date or 10 years from the discharge date, depending on the type of bankruptcy.
  • Forever: Unpaid tax liens and unpaid defaulted student loans don’t ever have to be removed. The bureaus can certainly choose to remove them, but the FCRA is silent on any limitation on how long they can be reported.

7.5 Years?

It’s complicated so follow me…as it pertains to the 7 year rule for non-public record derogs, there is a considerable amount of confusion regarding when the 7 year clock actually begins. For defaulted accounts the “anchor” date is the date of the default. Or, 180 days from the Date of First Delinquency (DoFD). The DoFD for a defaulted account (charge off, repo, foreclosure, settlement) is the oldest late payment that preceded the default. So, if you went 30, 60, 90, 120, 150, 180, then charge off…the DoFD is the date when the 30-day late payment occurred. Add 7.5 years to that date and that’s when the CRAs have to remove the reporting. They can, of course, remove it earlier if they like.

The Right to Dispute Credit Reporting Errors

If you disagree with information contained in your credit reports you have the right to dispute those items with the CRAs or with the furnishing party. Both are obligated to perform a “reasonable” investigation and if they find that the information being reported is indeed inaccurate it usually must be deleted or corrected within 30-45 days. If the information is verified as correct it will likely remain on your credit reports.

The Right to Access Your Own Credit Reports

Thanks to an amendment to the FCRA in 2003 called the Fair and Accurate Credit Transactions Act (FACTA), you have the right to free copy of all 3 of your credit reports free of charge once every 12 months. To leverage this right you simply need to visit www.AnnualCreditReport.com. Having said that, there is no shortage of other places to get free credit reports and credit scores to augment your annual freebies.

John Ulzheimer is a nationally recognized expert on credit reporting, credit scoring and the Fair Credit Reporting Act. John has written 4 books and thousands of articles about consumer credit. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has served as an expert witness in over 275 credit related lawsuits and has been qualified to testify in both Federal and state courts on the topic. You can follow him on Twitter @johnulzheimer and on Facebook @ulzheimerjohn.