The purpose of FCRA or the fair credit reporting act is to regulate the collection and management of information relating to personal credit of individuals. It regulates the collection, storage as well as the distribution of such information. The fact is that, credit reporting agencies that are spread all over the United States will always collect information about your financial transactions. They are legally allowed to do this, and this is actually needed as we will find out now. Based on the information these agencies collect, they will assign a credit score to you, and this score is what the lenders need when you have made an application for a loan. In fact, no lender will issue you any loan without first seeing what your credit score is. The fair credit reporting act has issued a guideline regarding what kind of information can be collected and distributed.
What Happens When You Apply For a Loan?
When you apply for a loan or even a credit card (because this is a line of credit too), the lending agency will first approach the credit rating agencies to find out what your score is. If you have taken a home mortgage or a car loan before, and even if you have a credit card, the agencies will definitely have your record with them. They would have evaluated things like the amount of loan, the terms of repayment, whether you have repaid on time or not, and the frequency of missed payment if you have missed the date a few times. Once the evaluation is done, the agencies will then give you a score.
This score shows your credit worthiness. In other words, if you have shown good finance management, then you can expect to get a good score. But if you have failed here, then your score will be average or poor. The fair credit reporting act tells these agencies how this can be done, and also, how your information can be shared legally.
Fair Credit Reporting Act for Consumers
But the fair credit reporting act is not just for the lenders and their benefits. It has also been passed to ensure that the consumer interest is protected. It protects you against any fraudulent or inaccurate information from being stored that can damage your reputation or credit history. The act protects you against errors made and also deliberate mistakes committed, though they are rare. Sometimes information stored is outdated or simply false. For instance, some debt collectors may report an old debt as a recent one. The agencies will not investigate this. They will just take such things in face value and bring down your score because of the additional debt.
According to the FCRA, you are allowed to check your credit score and credit report to find out if there are any such errors. You can do this checking free once a year. For the second time you are required to pay a fee. If you can find any errors, you are allowed to request a change. The fair credit reporting act gives consumers this right.