Banks typically report credit cards and loans to the credit bureaus. Your accounts then show up on your credit report and either positively or negatively impact your credit score, depending on the type of information reported. Derogatory account information on your credit report remains a contributing factor in your credit score for the duration of time that it appears on your report -- up to 7-1/2 years. You have the right to file suit against a bank whose inaccurate reports damage your credit rating.
The Fair Credit Reporting Act (FCRA) enables consumers to sue any company that either willfully or negligently provides inaccurate information to the credit reporting agencies. You must file suit against the information provider in the appropriate district court within five years after the company originally reported the inaccuracy. You have the right to demand that the company pay any financial damages you suffered as a result of the damage it inflicted.
Before You Sue
The FCRA gives you the ability to correct your credit report without filing a lawsuit. You can file a dispute directly with the bank reporting the derogatory information and request that it investigate its claim. You can also file a dispute with each reporting agency whose report reflects the error. Both the bank and the reporting agencies have 30 days to investigate the item and contact you with the results. Providing supporting documentation when contesting credit information helps you prove your case, and can expedite the investigation process.
While disputing inaccurate and derogatory information can help you clear up your credit report without filing a lawsuit, not every consumer dispute is successful. When faced with a dispute, the reporting agencies contact the information provider in an effort to verify the accuracy of the original report. If the bank claims that its incorrect data is correct, the reporting agencies can reject any further disputes you file for the same item.
When faced with a lawsuit, some financial institutions prefer to rectify the information rather than defend themselves in court. It is cheaper and less time-consuming for the bank to correct your credit report -- even if it denies that the entry in question is in error -- if you agree to drop the lawsuit.
You only have grounds to file suit against a bank that enters derogatory information on your credit report if the information is actually inaccurate. Banks have the right to report accurate derogatory information to the credit bureaus, since this information helps lenders and creditors make lending decisions. If you file a lawsuit in bad faith, the court has the right to demand that you pay the bank’s legal fees.