How to Understand the Fair Credit Reporting Act

The Fair Credit Reporting Act governs how agencies can collect and use consumer credit information. The Act allows consumers to correct mistakes on their credit reports and protects their privacy. Follow these steps to learn how the law works.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Computer with Internet access

1. Know your rights. The Fair Credit Act stipulates that if a company denies you credit based on a poor credit rating and report, that company must provide you with the name and contact information of the agency that prepared that report.

2. Examine your credit report free of charge. The Fair Credit Reporting Act entitles consumers to one free credit report every 12 months from each of the three major credit reporting companies: Equifax, Experian and TransUnion.

3. Understand the extent of your rights. If an insurance company or employer renders an adverse decision based on a bad credit report, those organizations also provide you with the name and contact information of the agency that prepared that report.

4. Exercise vigilance. Check your credit report regularly so that you can quickly catch and correct errors. Recent studies suggest that nearly 80 percent of all consumer credit reports contain at least one mistake.

5. Visit the Federal Trade Commission Web site (see Resources below) for more information on the Fair Credit Reporting Act.

Tips & Warnings

• There are penalties involved for anyone who violates the Fair Credit Reporting Act. If you feel you've been wronged, you can file a lawsuit. Gather all correspondence between you and the party involved along with a copy of your credit report. You can hire an attorney experienced in consumer law via the National Association of Consumer Advocates (see Resources below).
• Obtain your free credit report by visiting AnnualCreditReport.com (see Resources below).
• In addition to the three major credit reporting agencies listed in Step 2, database companies such as Westlaw, ChoicePoint, Lexis and eFunds (owner of ChexSystems) may also be subject to the Fair Credit Act.