Depending on the number, FICO scores can either wield significant purchasing power or prevent a consumer from qualifying for credit. Governed by The Fair Credit Reporting Act (FCRA) since 1970, the federal law ensures accuracy, fairness, and privacy of the data of bureau files.
Three major consumer credit bureaus (Experian, Equifax, and TransUnion), along with other organizations, collect and use consumers’ information. From there, financial institutions disseminate the data to determine approval or rejection based on a consumer’s credit history.
The FCRA also governs the collection, access, use, and data sharing by credit reporting agencies collected from consumer reports. The law also provides protections by determining the use and access of information.
Varied applications
While the ability to secure loans and credit cards at lower interest rates is the objective, other entities can also look at the score, specifically landlords, to determine creditworthiness to ensure rent is paid and on time. Certain states allow employers to access credit reports when selecting new hires. Even some insurance companies use the score to determine coverage eligibility.
Ensuring accuracy for creditors
The FCRA must also ensure that the information provided to creditors collecting on past-due accounts is accurate. For these agencies, adherence to the law is of paramount importance. Admittedly, many delinquent debts are legitimate and collectible. However, errors can result in a file getting into the hands of an agency. In fairness, the agents pursuing outstanding debts are under the assumption that the data is accurate and up-to-date.
Left unattended, a bad credit score can follow a consumer around for a long time. For companies in the business of collecting debt, insufficient data only serves to waste precious time that could be spent on collection activities.