The Fair Credit Reporting Act was passed in 1970, and was designed to protect consumers by restricting businesses from freely accessing private information. While credit reports exist primarily to assist companies in making financially sound business decisions, the FCRA ensures that consumers have the right to review their credit information, ensure its accuracy and fight fraudulent reports.
Protecting Private Information
Under the FCRA, a business must possess "permissible purpose" before pulling an individual's credit file from any of the three credit bureaus. Any business that requires a consumer's credit report to make an informed lending decision has permission to access that person's credit record. Businesses and individuals that do not intend to use a consumer's credit information in a lending situation—such as employers or insurance companies—must obtain the individual's permission before requesting a copy of his credit file. Thus, the FCRA preserves each individual's privacy.
The credit bureaus' goal is to maintain not only accurate information, but the most current information as well. The more recent an entry on an individual's credit report, the more weight it carries in the credit scoring formula. Because of this, the FCRA notes that credit bureaus must remove obsolete data after a pre-set period of time. This time period varies depending on the type of debt. Most closed accounts, however, become obsolete after seven years.
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Not all reports businesses make to the credit bureaus are accurate. Credit errors often result in consumers being rated a higher lending risk and paying steeper interest rates—if their applications are approved at all. The FCRA provides consumers with the right to dispute credit errors. Each credit bureau must investigate consumer disputes and attempt to verify the data with the company that originally reported it. If the information provider cannot verify its claim, the credit bureaus must amend the individual's credit records and provide him with a free copy of his credit report reflecting the changes.
Consumer Legal Rights
The FCRA provides consumers with legal recourse should an information provider knowingly report or verify inaccurate information to the credit bureaus. Should this occur, the consumers reserves the right to sue the information provider and request up to $1,000 in damages for each infraction. Forcing businesses to suffer financial consequences as a result of reporting inaccurate information promotes more careful credit reporting practices and provides consumers with a greater sense of security. The FCRA also grants consumers the right to sue any business or individual who obtains a copy of their credit report under false pretenses. Like inaccurate credit reporting lawsuits, the FCRA restricts damages to $1,000 for each infraction.