The Fair Credit Reporting Act: Behind the Scenes When You Acquire a Deed

Getting a deed often depends on a credit report. That’s because credit history is essential to the outcome of a mortgage application.

Wrong or breached data can lead to denied loans and other negative effects, like higher mortgage interest rates.

There is some good news for an applicant who’s turned down. The applicant must be told when this happens on the basis of particular information in a consumer credit profile. Also, the financial company has to identify the credit reporting firm. This way, the applicant can examine the negative information, and potentially challenge it.  

There’s a federal law that ensures those rules are followed. It also ensures that your credit information is accurate, protected, and fairly used. The law is called the Fair Credit Reporting Act (FCRA). It helps customers fix errors, prevent identity theft, and keep their financial identities safe.  

How We Got This Law

Richard Nixon signed the Fair Credit Reporting Act into law in 1970. It amended the Federal Deposit Insurance Act that was on the books at the time. This was around the time when banking technology as we know it was just being formed. At the time, it was common to find personal comments in borrowers’ files. To modern eyes, these notes would be questionable and perhaps biased. FCRA was intended to:

• Give people a remedy for wrong or unfair information in their credit reports.

• Declare that databases used to make decisions about a person’s life had to be open and accountable to correction.

• Ensure that negative credit history comes off in due time. This involves deleting negative credit data in seven years; deleting bankruptcy information in ten years; and deleting tax lien records in seven years from the date the lien is resolved.  

For decades after its enactment, the FCRA stood as a global model of data privacy and lender accountability.

What Our Credit Reports Contain

Our credit reports track our credit card use. This includes the timeliness of our bill payments, our credit limits and usage, and debt collection information. Some rental companies also report payments to the credit bureaus. A credit report could also include bankruptcy, court, and lien information. 

Sometimes, the information is wrong. The Federal Trade Commission has done studies that affirm this. FCRA lets consumers get a free, annual copy of their consumer report from each credit reporting agency to check the accuracy of details.

There is no penalty for disputing a credit report. Common errors could include activity from someone else’s account (often someone you’re related to).

So, after receiving an annual report, it’s wise to look for inconsistencies and challenge anything that’s incorrect. The companies must respond. They must correct errors on a credit profile.

Someone whose rights under FCRA are being violated can sue for money and receive court and attorney’s fees (and punitive damages, for any deliberate violations of the law).

A consumer should sue to defend their rights before the statute of limitations runs out (within five years from the violation, or two years since it came to the consumer’s attention).

A Credit Bureau’s Responsibilities

Credit bureaus — mainly Equifax®, Experian™ and TransUnion® — continually collect our financial details. With FCRA, these entities must:

• Be transparent about the way credit is scored.

• Disclose to consumers what data they keep.

• Have standard operating procedures so credit profiles are fair and accurate.

• Be transparent about errors they make.

• Act to check the data that’s challenged by a consumer; and offer the consumer legal recourse in case of detrimental mistakes.

A credit reporting company must also address fraud. Therefore:

• A consumer can register a fraud alert, so potential lenders are informed of a possible data breach.

• Consumers may also request to have their credit frozen. This will temporarily prevent parties from accessing the credit data.

• Lenders have a duty to verify suspicious lending applications.

• Lenders must advise consumers when their personal financial details are compromised.

When negative information is removed to respond to a consumer complaint, it can’t be put back into the record without certain procedures. For example, the bureau has five days to disclose its action to the affected person.

The FCRA deals with other financial data firms, too. “Nationwide specialty consumer reporting agency” firms gather consumer data such as insurance claims, job pay, and medical, rental, and check writing records. These firms must provide annual disclosures to consumers who ask. Unlike Experian, Equifax, and TransUnion, these firms need not offer online databases. But they must give customers a free phone number for disclosure requests.

A Lender’s Responsibility

Only authorized entities can examine our credit data. Potential lenders are among them. The lender is required by this law to treat people fairly when deciding to reject or approve their mortgage applications.

Once a loan is approved, a lender reports our repayment details to credit bureaus. Whenever we make or miss a payment, it’s reported. In this way, a credit history comes together that either boosts or limits us.

Lenders reporting to credit bureaus must:

• Provide complete and accurate information.

• Investigate consumer challenges received from credit reporting firms.

• Fix, remove, or confirm the data in question within 30 days.

• Inform the consumer about any negative information which is being entered into the consumer’s credit report within a month.

Now, who sees to it that these rules are followed?

The U.S. Federal Trade Commission is responsible for enforcement of the law. Rulemaking under FCRA is done by the Consumer Financial Protection Bureau (CFPB). In 2010, after the mortgage crisis, the Dodd–Frank Wall Street Reform and Consumer Protection Act assigned these rulemaking responsibilities to the CFPB. But see our article on the weakening of the CFPB under the Trump administration.

A Good Law for Deed Seekers

Most of the time, we don’t think about the Fair Credit Reporting Act. But — as many federal laws do — the law faithfully operates on our behalf behind the scenes.

The law helps us to manage and improve our credit. It also gives us insights as to who is looking at our credit profiles. Someone who pulls our data has to notify us when making a negative decision on the basis of information contained in the credit profile.

Further, the law shields our financial information against improper use. And it helps to keep our information updated and accurate.

Now you know: this legal tool is yours to use. Is something not adding up when you look up your annual report? The credit bureau has to check into the matter and rectify the problem, generally within a month. 

Are you aware of the most effective steps you can take to strengthen your credit profile (and not accidentally weaken it)? Learn more with Deeds.com.