The Fair Credit Reporting Act: What it is and how it protects you

And oftentimes, lenders, employers, and potential landlords will use it as a guidepost when making a decision about whether they should approve you for a new credit card, loan, job, apartment, and more. 

Because the accuracy of the information on your credit report is so important, it’s even more crucial that credit-reporting agencies be held to a high standard and held accountable for any misinformation or misuse of your personal financial data. That’s where the Fair Credit Reporting Act comes into play. 

What is the Fair Credit Reporting Act? 

Passed in 1970, the Fair Credit Reporting Act (FCRA) is a federal law that was established to protect the fairness, accuracy, and privacy of the personal information collected and reported by credit reporting agencies. “The Fair Credit Reporting Act guarantees that consumers will have access to a process to address issues and items reflected in their credit report,” says Michael Pugh, president and CEO of Carver Federal Savings Bank, one of the oldest and largest African American managed banks in the United States. “It also requires Credit Reporting Agencies to maintain privacy of consumers’ personal information.” 

Why are these protections so vital? Because credit is an essential tool to building wealth and hitting some of life’s major milestones. Your credit report and score are used by lenders to determine the likelihood that you’ll repay them for any money you borrow, it can also be used by potential landlords in tenant screenings, and even potential employers may review your credit report before making a hiring decision. 

Any false information can seriously hurt your chances of hitting your goals. And for some consumers, the likelihood of incorrect information in their credit report is significantly higher. 

According to a 2021 report from the Consumer Financial Protection Bureau (CFPB), Black and Hispanic neighborhoods are predominantly impacted by credit reporting inaccuracies. In almost every credit category reviewed (auto loans, student loans, credit cards, and retail cards), consumers residing in majority Black areas were more than twice as likely to have disputes appear on their credit reports compared to consumers living in majority white areas. For auto loans, consumers in majority Black areas were more than three times as likely to have disputes appear on their credit reports. 

“Errors, omissions, and incorrect information are common violations under the Fair Credit Reporting Act. In fact, more than a third of people surveyed by Consumer Reports found their credit reports rife with errors, heightening calls to fix a broken system that fails consumers,” says Pugh.

How does the fair credit reporting act protect consumers? 

Some of the key rights and protections that the FRCA guarantees consumers: 

1. You must be notified if the information in your credit file was used against you. If you are denied new credit, employment, etc., the credit reporting agency must provide you with the name, address, and phone number of the agency that provided the information.
2. You have a right to know the information contained in your file. You can request a free credit report from each of the three major credit bureaus every 12 months through AnnualCreditReport.com, although currently all three major credit reporting agencies are offering free weekly online credit reports through December 2023 because of the COVID-19 pandemic. Equifax is also offering everyone in the U.S. six free credit reports per year through 2023 through its website. 
3. You have a right to request a credit score. You can access your credit score through one of the three major credit bureaus.
4. You have a right to dispute inaccurate or false information. If you identify information in your credit report that is inaccurate, and report it to the consumer reporting agency, the agency must investigate your claim and remove any incorrect information from your credit report. 
5. Credit reporting agencies can’t report outdated negative information. A consumer reporting agency can’t report negative information that is more than seven years old, or bankruptcies that are more than 10 years old.
6. Credit reporting agencies can only share your credit report if there is a valid need. Your credit report can’t be given to just anyone. Under the FCRA, agencies can only share your report with those who have presented a valid need, such as a creditor, insurer, employer (with your written consent), or landlord. 
7. You can opt out of “prescreened” offers for new credit and insurance. Prescreened offers for credit and insurance must provide consumers with a toll-free phone number they can use to remove their contact information from the lists companies use to contact potential customers. 
8. You have the right to place a security freeze on your credit. Freezing your credit file stops prospective creditors from accessing your credit file and stops you (or potential scammers) from opening new accounts in your name. 
9. You can seek damages from violators. If a credit reporting agency violates the FRCA in any way, you may be able to sue for damages. 

How can consumers dispute errors or report violations?

If you notice an error on your credit report, don’t wait to take action. 

“For consumers that find incorrect information on their credit report, they should immediately dispute the item with the Consumer Financial Protection Bureau as well as each Credit Reporting Agency, that is, Equifax, TransAmerica, and Experian. The Fair Credit Reporting Act allows them to obtain a free copy of their report and outlines a process by which the consumer can present evidence to correct the record,” says Pugh.

All three credit bureaus (Equifax, Experian, and TransUnion) allow you to file a dispute online, over the phone, or by mail. You can also contact the company or issuer who reported the incorrect information to the credit bureau (i.e., the “furnisher”) and dispute the error with it as well while you wait for your dispute to be processed with the credit bureau. 

 “The bottom line is the consumer must be vigilant in protecting their credit and more must be done to ensure equal access to capital for black and brown communities,” says Pugh.