When any entity is making a decision based on a consumer's credit, there is a lot at stake. A good credit report can open lots of possibilities for consumers, while a bad one can ruin their chances of getting a job, finding a place to live or receiving a loan or insurance. In 1970, the Fair Credit Reporting Act was enacted, due to the many decisions that are made based on consumer credit. So what is the purpose of the Fair Credit Reporting Act, and how does it affect consumers?
In basic terms, Fair Credit Reporting Act (FCRA) is a federal law that regulates the collection and use of consumer credit information. It involves those that report on consumer credit, such as credit reporting agencies, along with anyone that uses consumer credit information to make decisions, such as employers, banks, insurance companies and landlords.
The FCRA ensures that credit reporting agencies are fair and accurate in their assessments. It also ensures that those who access and use consumer credit information do so using proper procedures and it gives consumers protection against any inaccurate information that might be included in their credit reports.
One of the main points covered in the FCRA is the requirement that credit reporting agencies maintain accurate and complete credit information for all consumers. They must ensure that any individual consumer's credit report is up-to-date, complete and accurate.
This includes information such as credit card and loan balances, payment and credit history and public records, including bankruptcies and finance-related court judgments. Credit reporting agencies must also investigate all disputes and correct any errors in a timely manner.
The FCRA gives consumers the right to access their credit reports and dispute any errors in case there is inaccurate information. Credit reporting agencies are legally required to provide consumers with a free copy of their credit report every 12 months upon request.
They must also provide a free report if the consumer has been denied employment, credit or insurance due to information in their report. If a consumer finds an error in their credit report, they can dispute it with the credit reporting agency and the agency is required to investigate the dispute and make necessary corrections within 30 days.
The FCRA requires that entities that use credit reports to make decisions about individuals provide them with notice and obtain their consent before using the information to make a decision.
For example, suppose a lender denies a loan application due to information found in the applicant's credit report. In that case, they must give the applicant notice and allow them to review and dispute the information in the report before officially denying the loan. This same procedure applies to employers and landlords who may use credit checks to deny applicants for jobs or rentals.
The Fair Credit Reporting Act was created primarily to protect consumers. It allows consumers to make sure their credit reports are accurate since those reports are often used in important decisions.
The FCRA also regulates how consumer credit information is shared with third parties, stating that credit reporting agencies can only share consumer information with those that have a permissible purpose, such as employers who are doing background checks on potential employees and landlords who are looking into potential renters. These entities are only allowed to use credit information for the purpose they originally intended and cannot share it with other parties unless given permission by the consumer.
The Fair Credit Reporting Act benefits renters by allowing them to ensure that their credit report information is correct and complete when they apply for housing.
Landlords often do credit or background checks on rental applicants and the FCRA allows renters to ensure that all information the landlords find is accurate and up-to-date, so when landlords make their decision to accept or deny an application, they are doing so based on true information.
It's important for renters to know their rights when it comes to their credit information and they should be aware that they can dispute any incorrect information in their credit report.
Renters should also keep in mind that landlords can only use their credit information for the purpose of deciding whether to accept or deny their rental application. The FCRA is there to protect consumers, including renters, so be aware of your rights!