We’ve all seen the ads about how important credit scores are. They can drastically change the amount you pay in interest. They can make or break your application for a loan. They can even help or hinder your chances for employment.
What you may not know is that federal law dictates how credit reporting agencies gather and maintain the information on your credit report. The same law, known as the Fair Credit Reporting Act, provides the basis for consumer credit rights in the United States.
You’re probably familiar with the most widely recognized credit reporting agencies (CRAs): Experian, TransUnion, and Equifax, which have certain responsibilities under the Fair Credit Reporting Act. A CRA is required to provide consumers with information about their credit report, and to take reasonable steps to insure the accuracy of information contained within a report.
Thanks to a 2003 amendment to the FCRA, consumers are entitled to one free copy of their credit report each year. (If you’d like your free annual copy of your credit report, head on over to AnnualCreditReport.com.)
Should you ever come across inaccurate information in your credit report, you have the right to dispute the information on the report. If the data is removed as a result of the dispute, the CRA cannot reinsert the information into your report without providing you with written notice within five days.
Finally, CRAs may not retain negative information on a report for an excessive period of time. Generally, this period is limited to seven years from the date of delinquency. Bankruptcies can stay on a report for up to ten years, and tax liens can stay on a report for up to ten years after they are paid.
The FCRA also puts certain responsibilities on the shoulders of what it calls “information furnishers.” These are companies that provide credit information to the CRAs. Generally, these institutions are creditors. They might be banks, credit card corporations, auto finance companies, or utility companies.
These companies are required to provide accurate information to the credit reporting agencies. They are also responsible for investigating disputed information. In the event of errors, they must correct them or explain why they are correct, in writing, within 30 days of dispute. Finally, the institutions must inform consumers about negative information which has been or is about to be placed on their credit report within 30 days.
FCRA also lays responsibilities on the agencies who use credit reports to evaluate consumers for insurance, credit, or employment purposes. These agencies must notify consumers when an adverse action (rejected application, for example) is taken as a result of a consumer’s credit report. They must also notify the company that provided the report, so that the consumer can verify, or if necessary, contest, the information contained in the report.
It’s always a good idea to keep on top of your credit report. Many studies have found that large majorities of credit reports contain errors. You can order one free copy of your credit report each year from each CRA. There are also paid services help you monitor your score in real time.
Remember, the difference between a good credit score and a bad score can be the difference between loan rejection and acceptance, a high and low interest rate, and whether or not you qualify for certain jobs.