Fair Credit Reporting

The Fair Credit Reporting Act

When you apply for credit, the lender may ask a credit reporting agency for a summary of your financial history before deciding whether to grant the loan. This is standard procedure, particularly when substantial sums are involved, and every day, thousands of such credit reports are issued to lenders throughout the country. The majority of them deal solely with your bill-paying record in connection with the credit transactions in which you have been involved over the last several years.

On the other hand, if you apply for a job that carries considerable financial responsibility or a large amount of life insurance, you may be examined much more thoroughly. In a so-called investigative credit report, the agency may also get in touch with your friends, neighbors and business associates to discover as much as possible about the way you live. But if such a report about you is contemplated, you are entitled to be notified of this fact within three days of the time the request for the report is made — unless the investigation is in connection with a job for which you have not specifically applied. And you are also entitled to obtain a complete and accurate description of the nature and scope of the investigation request.

If you are rejected for a loan or credit, you have the right to invoke the protections offered by the Fair Credit Reporting Act. This law requires lenders to inform rejected applicants of the reason for the rejection, and if that reason is a negative credit bureau report, the law gives those applicants a number of important rights.

First, they have the right to know the name and address of the credit bureau that issued the report and to know precisely what information about them the credit bureau has in its files. Applicants who request this information, either by mail or phone, within 30 days of the time that credit was denied them must be given it free of charge; thereafter, the credit bureau may demand a small payment.

It is up to the credit bureau to decide how to make that material available. Most permit applicants to examine the file itself, by com-ing to the bureau office — and the law permits them to bring their lawyers or other persons with them, if they choose. If that is not convenient, the bureau will supply either a copy of the material in the file or a written description of it. If the applicant has any difficulty understanding this material, the bureau is obliged to explain and interpret it.

In addition, the Fair Credit Reporting Act gives credit applicants these important rights:

  • The right-to know the names and addresses of all companies to which the report was sent during the preceding six months.
  • The right to challenge any information in the credit report on the grounds either of its accuracy or its date, and to compel the credit bureau to reexamine such information, by consulting with the creditor in question, if necessary. Generally, any negative information — arrest records, paid tax liens, adverse lawsuits or judgments, for example — that is more than seven years old must be removed. One exception is a previous declaration of bankruptcy, which may stay in the files for 10 years. Another is the case of an individual applying for credit on life insurance worth more than $50,000 or a job paying more than $22,000 a year. Any information that proves to be incorrect must be stricken from the record.
  • The right to have all changes made as the result of investigation sent to any companies that received the inaccurate report.
  • The right to enter into the file, in the event that investigation does not alter it, a short statement giving the applicant’s side of the story. This statement — or a summary of it — must be included in all future reports the agency sends about the applicant.

These protections are extremely valuable. Applicants who discover errors in the report are in a good position to reopen their previously failed negotiations, and this time they may be successful. Even if there is no error, it is often helpful for applicants to enter their own statements with the report. There may be extenuating circumstances — a temporary loss of employment; a one-time major and unexpected expense — that will make them more attractive prospects to lenders who might otherwise reject them.

Most credit bureaus adhere strictly to the requirements of the Fair Credit Reporting Act and cooperate willingly with consumers. But if you have any difficulty with an agency, you should report it in writing to: Bureau of Consumer Protection, Federal Trade Commission.

The Commission will not intercede for you, but a number of complaints may trigger an investigation and, possibly, legal action that halts the company’s offensive practices.

You should also report any problems to the credit bureau trade organization, which will attempt to settle the dispute. Write to: Associated Credit Bureaus.

If this intercession fails, and you believe that a credit agency has violated your rights under the law, consult an attorney. You may have grounds for legal action under the law and your suit, if successful, will bring you damages as well as court and attorney’s fees.

Another source of help in disputes with credit agencies is your state attorney general’s office. In situations where you are unable to reach an agreement, you may bring suit. If you are successful, you may collect damages as well as court and attorney’s fees.

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