It is important to understand who makes the rules that govern our industry. Credit reporting is a completely voluntary process, but heavily regulated. There is no law that forces a lender or collection agency to become a data furnisher and share account management information with the CRAs. There is also no law that forces the CRAs to accept information from a lender or collection agency. But, when you do choose to put something on someone’s credit report you are then compelled to abide by the rules.
The primary federal law that governs credit reporting is the Fair Credit Reporting Act (FCRA). Originally passed in October of 1970, the FCRA has been amended numerous times over the past 4 and 1/2 decades. Most importantly for consumers, the FCRA provides you with a long list of rights and protections in the credit reporting arena – rights that data furnishers and especially the CRAs must heed unless they wish to face some potentially serious monetary consequences (i.e. lawsuits and fines). The law is extensive, over 108 pages long in fact, and includes a considerably long list of consumer protections. Here are a few of the highlights:
1. Time Limitations on Credit Reporting
The FCRA places strict time limits on negative credit reporting. There is no minimum amount of time required for credit reporting, but there is a maximum amount of time for the bad stuff. The good stuff can remain forever, as there is no law requiring that it ever be removed.
The time limit depends on the type of information that appears on your credit reports. Although most negative items must be purged from your credit reports eventually, there are a few exceptions to this rule. There is no requirement under the FCRA to remove positive information from your credit reports, though the CRAs do generally remove closed, positive accounts from your reports after 10 years as a matter of policy.
The 7 Year Club – The majority of derogatory information on your credit reports is required to be removed after a period of 7 years. Late payments, foreclosures, collection accounts, charge-offs, judgments, released tax liens, settlements, and repossessions are a few examples that fall into the category of items that can remain on your credit for no more than 7 years.
The 10 Year Club – Bankruptcies make up the list of credit report items that are permitted to remain on your credit reports for no more than 10 years. More specifically, a Chapter 7 bankruptcy must be removed from your credit file no later than 10 years from the date filed. A Chapter 13 bankruptcy must be removed from your credit no later than 7 years from the date discharged, but not to exceed 10 years.
The Forever Club – Much to the chagrin of many consumers, there is a small list of negative items that are not required to be removed from your credit reports, ever. Unpaid tax liens and unpaid federal student loans are both members of this group. The CRAs may maintain these items indefinitely if they wish to do so.
The Right to Dispute Errors
If you find items appearing on your credit reports which are questionable, outdated, or with which you disagree, you have the right to file a dispute with the CRAs. Disputing an item does not automatically guarantee the removal of the account, but it does force the CRAs to conduct a “reasonable investigation” into your claim and to either verify the account as accurate or delete it from your credit reports. You have the right to dispute anything on your credit reports with which you disagree and the CRAs generally have 30 days (though sometimes 45 days) to investigate your claim. There is no cost to file a dispute, at least not for the consumer.
The Right to “Opt Out”
You might not realize it but the CRAs are permitted to sell your personal information to any company who wishes to send you a “firm offer of credit” such as a credit card or a loan (check your mailbox today and you’ll likely find at least one such offer). However, you also have the right under the FCRA to opt out from having your information sold, if desired. To opt out simply visit www.OptOutPrescreen.com and fill out a request form. You can opt out electronically for a period of 5 years or you can mail in a request to opt out permanently. Opting out will reduce the amount of mail you receive and also reduce your exposure to credit card fraud.
Free Credit Reports
Thanks to the Fair and Accurate Credit Transactions Act (FACTA), which amended the FCRA in 2003, you have the right to access a free copy of each of your credit reports every 12 months. Although these free reports have been available to U.S. consumers for over a decade, only small fraction of them are claimed each year.
Limitations Access to Your Credit Information
If you were not already aware, you just learned that the CRAs are allowed to sell your credit report information to other companies for marketing purposes unless you exercise your right to opt out. While this may seem like an invasion of your privacy, the FCRA does in fact place some strict limitations regarding who else is allowed to access your credit reports. In order for any entity to access your credit reports it must have what is referred to as “permissible purpose” to do so according to the FCRA. Some of the most common examples of “permissible purpose” include the following:
Lenders – When you apply for a loan or financing of any kind from a lender a copy of your credit report may be accessed. Your written permission is not required.
Insurance Underwriting – Your credit reports may be viewed by companies who write insurance policies if you are applying for new or continued coverage. Your written permission is not required.
Employers – Employment screening constitutes another permissible purpose to access your credit reports. However, in the case of employment screening your written and overt consent is required before accessing your credit reports. Additionally, you may have heard that employers will consider your credit scores, but that is a myth. Credit reports, not scores, are provided for employment screening uses.
Court Orders – Your credit reports may be accessed under a court’s order.
Consumer Disclosure – You have the right to check your own credit reports as often as you like, though there are limits regarding how often the CRAs have to provide you a report free of charge.