The Fair Credit Reporting Act, Explained

This legislation guarantees several important protections to consumers.

The Fair Credit Reporting Act, or FCRA, is a federal law that was passed in 1970 that regulates several aspects of the credit reporting industry. And, as the name implies, the FCRA aims to ensure the fairness of the information recorded in consumers' credit files with the major credit bureaus.

In this article, we'll go over the most important right you're guaranteed under the FCRA, and what they could mean to you.

Important things to know about the FCRA

There are several rights guaranteed under the FCRA that are very important for U.S. consumers to know. Here are the most important protections guaranteed by the Act.

The right to know how your credit is being used

If information in your credit file is used against you, the FCRA gives you the right to know about it. This is true if you're denied for credit, as well as for other things such as employment, based on your credit report. If you've ever been rejected for a loan or credit card and received a letter in the mail a few days later detailing the reasons why, you can thank the FCRA.

The right to privacy in your credit file

Only people or companies with a permissible purpose can check your credit. In other words, your creditors can check your file, as they have a legitimate reason to need to take a look. Employers can as well in certain states, if you give written permission. But this part of the FCRA prevents just anyone from looking at your credit file.

The right to deny access to your credit file

On a similar note as the previous point, the FCRA allows you to freeze your credit report. This prevents any potential lenders from checking your credit file at all unless you choose to temporarily lift the freeze. Not only can this help you protect your privacy whenever you choose to use it, but it can also be a valuable tool if you think your identity has been compromised.

The right to not be pre-screened for credit

You can choose to opt out of pre-screened offers for credit. If you're receiving too many mailers offering you personal loans, credit cards, mortgages, etc., the FCRA gives you the right to put a stop to it.

The right to see your credit file

You have the right to view your own credit reports from all three major credit bureaus (Equifax, Experian, and TransUnion) free of charge. Currently, you can view your credit report for free weekly at AnnualCreditReport.com; in the past, this was limited to once per year. There are services out there that would have you believe the only way to see your full credit report from all three bureaus is to pay for it, but that's simply not the case.

It's important to note that you don't have the right to see your credit score for free. Credit scores (such as FICO) are maintained by independent businesses, not the credit reporting agencies.

The right to an accurate credit file

You have the right to dispute information on your credit file if you believe it is inaccurate or outdated. For example, most negative credit information can only remain on your report for seven years, so if you notice a charged-off credit account from 10 years ago is still being reported, the FCRA gives you the right to not only dispute it, but to have the matter investigated in a timely manner.

The bottom line on the FCRA

The Fair Credit Reporting Act gives you several protections when it comes to how your credit information is used, reported, and maintained, and it's important for all American consumers to know them. The FCRA's provisions could potentially save you lots of money, time, and aggravation over the long run, so keep these in mind for the future.