Credit Report Errors

WHAT ARE THE MOST COMMON FCRA VIOLATIONS?

Under the Fair Credit Reporting Act (FCRA), credit reporting agencies—e.g., TransUnion, Equifax, and Experian—are required to report fair and accurate information about a consumer’s financial history. When a credit reporter fails to abide by the regulations set forth in the FCRA, the consequences to the affected consumer can be devastating.

An FCRA violation can result in an unfairly reduced credit score, which could prevent a consumer from obtaining a credit card or a loan for a house or a lease for a car. For many, the inability to secure vehicle financing might mean losing—or being prevented from getting—a job or being unable to take care of one’s family. The FCRA may be designed to protect consumers’ credit reports but it doesn’t police itself, so it is in every consumer’s interest to know what FCRA violations look like and how to address them.

The most common FCRA violations deal with reporting inaccurate or outdated information. Some inaccurate or outdated information is easy enough for the average consumer to identify, whereas other information requires somewhat more specific knowledge of the FCRA regulations. For example, a consumer can readily identify when a paid account is marked as ‘delinquent’ or when a voluntarily closed account is marked as ‘active.’ It might, however, be less obvious to the average consumer that it is an FCRA violation to report debt on the report of a consumer who is merely an authorized user of the account.

Common types of FCRA violations due to reporting inaccurate information include:

• Marking a timely made payment as ‘missed’ or ‘late’.
• Reporting a credit account on the report of anyone other than the debtor.
• Failing to change the status of a charge-off account once it has been paid or settled.
• Stating an inaccurate account balance.
• Reporting ‘mixed’ information from two or more individuals on a single consumer’s report.

FCRA violations based on outdated information can be more difficult to identify due to the complex rules around statutes of limitation and debt re-aging. There is a statutory limit to how long an agency may report a negative credit event (or “trade line”), and the length of time is based on the type of event: 2 years (credit history requests), 7 years (missed payments; most public record items, such as court judgments; chapter 13 bankruptcy), or 10 years (paid closed accounts; chapters 7, 11 and 12 bankruptcies).

Common types of FCRA violations due to reporting outdated information include:

• Reporting debts as ‘new’ or ‘current’ after the statute of limitations for reporting has run.
• Continuing to report a debt that was discharged in bankruptcy.
• Maintaining an account listing as ‘active’ after it was closed by the consumer.

Credit reporters can also run afoul of FCRA regulations by failing to provide adequate procedures for reporting identity theft or for disputing a credit report trade line. A consumer who had been victimized by identity theft should promptly notify each of the three primary credit reporting bureaus of the theft and routinely check their credit report to ensure no inaccurate information was reported after providing notice. Likewise, a consumer should not hesitate to follow up with a reporting bureau after filing a trade line dispute. Credit reporters have 30 days to resolve the dispute once it is opened, and failure to properly investigate a dispute or to resolve it within the statutory time period is a violation of the FCRA.

 

WHAT IS THE FAIR CREDIT REPORTING ACT (FCRA)?

Enacted in 1970, the Fair Credit Reporting Act (FCRA) is the set of Federal regulations governing how credit-related financial information is managed and protected, including how it is collected, processed, reported, and accessed. With fairness and privacy as its primary focus, the Act creates a baseline for consumer credit security across the U.S., the protections of which may be augmented—but not mitigated—by individual state legislatures.

While the FCRA addresses critical privacy considerations by, in brief, limiting the types of financial information that may be reported and with whom that information may be shared, the Act puts most of its weight behind fair management of factors affecting access to, and the cost of, borrowed assets by regulating how credit scores are calculated.

The FCRA specifically targets consumer fairness by defining the types of reportable credit events (or “trade lines”), as well as the age limits of credit-related financial information that may be collected, processed, and reported by credit reporting bureaus (or “agencies”). Presently in the U.S., there are three such agencies that handle the vast majority of standard consumer credit reporting: TransUnion, Experian, and Equifax. These names should be familiar to anyone who has reviewed a consumer credit report, as the agencies’ respective credit scores, as well as the line item data used to generate the scores, are provided together in a typical consumer credit report.

Notably, the FCRA further promotes fairness in credit reporting by mandating no-cost access to a consumer’s own credit report, including report details from each of the big three reporting bureaus. In addition to basic credit accounts, a standard credit report might include other types of trade lines, such as cell phone or utility payment history, tax debt, bankruptcy, or outstanding legal judgment. Under the Act, a consumer is entitled to obtain a free annual report, though many online services are now available to consumers interested in monitoring their credit scores on a more frequent or ongoing basis (e.g., CreditKarma).

The right to access one’s credit information enables a consumer to monitor his credit activity and empowers him to take corrective action by identifying and disputing erroneously reported debts or other credit events (i.e., “trade lines”) affecting his credit score. When checking one’s credit report, it is tempting to look no further than the overall combined score, as the sheer volume of information provided by the three bureaus can be overwhelming. It is critical, however, to look at each of the three scores from the independent reporting agencies, as the independent scores can vary, each being capable of substantially affecting the combined reported credit score.

The cause of variance among scores may be as simple as a slight difference in bureau calculation or as critical as a reporting error based on a false or fraudulent claim by an ill-intentioned creditor. Score variance can also result from an agency’s failure to drop a trade line after it has been resolved or otherwise nullified, such as after the expiration of the statute of limitations for reporting on a specific type of credit account.

It is also important to carefully review the content of all three reports when disputing a trade line because resolving a dispute with one—i.e., successfully removing a trade line—will not affect.