What is the Fair Credit Reporting Act?

Xiomara Martinez-White, Editor at LendingTree

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The Fair Credit Reporting Act (FCRA) is comprehensive federal legislation that regulates the credit reporting industry and grants certain consumer rights regarding how credit data is collected and shared. The FCRA also gives you the right to receive free copies of your credit reports each year and requires credit bureaus to investigate reporting disputes.

Essentially, the FCRA protects consumer credit information. The law sets specific permissions and requirements for entities that use credit reports and provides recourse for victims of identity theft and other damaging forms of credit fraud.

Consumer protections through the FCRA

The Fair Credit Reporting Act sets regulations that shield you from unfair credit reporting practices and provides transparency into your credit reports. Since your credit score significantly impacts your personal finances, the FCRA can be an important safeguard.

How credit information can be shared

Your credit reports contain sensitive personal information and details about your financial history. Credit bureaus collect that information to give lenders, landlords and other groups an idea of how creditworthy you are — how well you’ve paid past debts and how likely you are to repay future credit obligations.

The FCRA ensures that your credit report can only be accessed for legally permissible purposes. Those purposes include court orders, your own requests and common reasons a financial institution would use them, like insurance underwriting or assessing a loan application.

In addition to setting rules for how consumer reporting agencies can share that data, it also governs how banks and lenders can share your financial information with credit bureaus and each other. It also mandates that employers must gain consent to get a copy of your credit report.

Mandatory consumer disclosures

The FCRA helps you stay informed about credit reporting processes that affect you. You’re entitled to a free copy of your credit report once per year from each of the nationwide credit bureaus: Equifax, Experian and TransUnion. In certain circumstances — such as if you are denied credit, you’re unemployed or you believe you’ve been a victim of fraud — you may be eligible for additional free copies of your report. To request your reports, visit AnnualCreditReport.com.

You also have the right to ask a credit reporting agency for your credit score, though you may have to pay for it.

Financial institutions must provide you with notices about how your data is used under certain circumstances. Since your credit information affects you when applying for credit or insurance products, the FCRA also requires you to be told if that information has been used against you and by whom.

To help consumers manage their financial health during the uncertainty of the COVID-19 pandemic, the three major credit bureaus have extended access to free weekly credit reports through the end of 2023.

Ensuring credit data accuracy

Inaccurate or outdated credit information can negatively impact your financial situation — the FCRA provides guidelines so you can ensure that your information is accurate. If you file a dispute with a credit bureau, they must investigate it, typically within 30 to 45 days. If the investigation finds that the dispute has merit, the reporting agency must fix any information that is inaccurate, incomplete or otherwise unverifiable.

There are also rules about how credit reporting agencies can report old information. Most of your credit history is removed from your report after seven years, though there are situations in which a derogatory mark can stay on your report for up to ten years.

Identity theft protections and alerts

Unfortunately, identity theft and credit fraud are real problems for many consumers. The FCRA allows you to place a “security freeze” on your credit, which will stop identity thieves from opening new lines of credit in your name. Keep in mind that a frozen credit file will also prevent lenders from viewing your credit profile if you apply for a loan, unless you unfreeze your credit.

The FCRA also gives you the right to place a one-year fraud alert on your credit file at no cost. If a credit file has an active fraud alert, any creditors must take steps to verify the consumer’s identity before approving new credit.

Entities that can access credit information

The Fair Credit Reporting Act’s guidelines control who can see your credit data. Generally, it permits financial institutions and government agencies to access your credit information. Here’s who can request a copy of your credit report:

Lenders and creditors: When you borrow money, prospective lenders will need to see your credit history to determine your creditworthiness. Those creditors may have future access during your ongoing borrowing relationship.
Insurance companies: Insurers who sell policies will also want to see whether you’ve shown a track record of being able to keep up with your financial obligations when assessing risk.
Landlords: Just like you’d need to grant access to your credit file for a mortgage application, a landlord may also need to view that information — after all, they want to make sure you can pay your rent.
Utilities providers: For services like water, gas and electric, utility companies may check your credit history to determine whether you can make monthly payments. If not, you could be denied service.
Employers: While you need to explicitly grant employers permission to see a copy of your report, you may be mandated to do so when applying for a job, especially if you work in a financial field.
The government: Credit reports can only be shared with the government — and specific agencies — under certain circumstances, including when you’re required to pay child support.

Reporting a violation of the Fair Credit Reporting Act

If you think your rights under the FCRA have been violated, you have some options. You may be able to sue a company if they’ve committed an infraction. If a company knowingly and flagrantly breaks the law, it could be subject to a class-action lawsuit seeking damages on behalf of numerous consumers.

The Fair Credit Reporting Act is enforced by the Federal Trade Commission (FTC), so if you believe a lender or creditor hasn’t properly followed the guidelines, you could submit a formal complaint. The FTC has held several credit bureaus and corporations accountable for violations over the years.

Just because you see an error on your credit report doesn’t mean that a creditor has done something illegal. Inaccurate information isn’t necessarily a violation as long as it is disputed, investigated and properly resolved.

Using your other rights under the FCRA

You may not notice many of the FCRA’s protections, especially if you’ve never had your identity stolen or experienced major credit report issues. Still, there are a few ways to take advantage of your rights under the law:

Check free credit reports

Credit bureaus are required to give you a copy of your credit report and your credit score when you request them. You’re entitled to these reports for free once a year or in the specific circumstances outlined earlier. Even if you haven’t noticed unusual activity on your credit, it’s a good idea to check your report once a year to monitor your credit health and watch for errors.

In addition to your free report, credit-reporting agencies must provide you with your report any time you ask, though you may have to pay a fee.

Dispute inaccurate information

If you run into issues, you can file a dispute with the credit bureaus. That process involves documenting the specific errors you’ve found and providing supporting evidence to substantiate your claim.

Credit bureaus may ask you to contact creditors linked to inaccuracies. The law mandates that dispute investigations must conclude within 30 days, in most cases. If the credit bureau finds that there is indeed an error, the incorrect information will be fixed.

Opt out of unsolicited prescreened offers

The FCRA also allows you to ask banks, insurers and credit companies to stop sending you prescreened offers. The law lets companies view your information to determine whether to send you promotions or product information — but if you request that they stop, they have to comply. To opt out, visit OptOutPrescreen.com.

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