Congress passed The Fair and Accurate Credit Transactions Act (FACTA) on December 4, 2003. This is an amendment to the Fair Credit Reporting Act (FCRA). The FCRA allows anyone to have access to his or her personal credit history. The FACTA amendment to the FCRA allows all consumers to request or obtain a free credit report of his or her credit history once a year.
There are three national credit reporting companies:
Another goal of the FACTA is to reduce the number of identity theft occurrences.
Companies that have business dealings with consumers voluntarily submit data and information to the credit reporting companies. The reporting companies compile this data to create credit reports for consumers. The companies that supply the data and information to the credit reporting companies are defined as “furnishers” by the FCRA.
The data and information received by the credit reporting companies is accepted as true and accurate. Recent studies, like the one conducted by the U.S. Public Interest Research Group (PIRG), show that one in four credit reports contains significant errors.
The FCRA and the FACTA both place emphasis on accurate credit reporting and information in the consumer reports. Two of the sections in the FACTA are meant to improve the accuracy and integrity of the information and are meant to give consumers the right to dispute any data included in the credit reports. The consumer may dispute the information directly with the company responsible for furnishing it.
The sections in the FACTA that discuss these improvements are:
- Accuracy guidelines for financial institutions and creditors that furnish information to credit bureaus.
- Ability of consumers to dispute information with companies that report to credit bureaus.
The Types of Credit Scores
The two credit score types are:
- Bureau-based scores
- Custom scores
The Fair-Isaac Corporation developed a credit score that measures credit risk. This credit score is called the FICO score and is the most widely used bureau-based score in the financial service industry. All major credit reporting companies use the FICO.
Every credit reporting company has the ability to produce its own credit score. Compiling statistics and data from a large group of consumers creates the bureau-based credit scores. The group of consumers used to create the bureau-based scores is chosen from a variety of accounts.
Custom scores are generated by individual lenders who rely on information such as:
- Reporting from credit bureaus
- Account history form the individual lender’s portfolio
Scores are used for several reasons. Some of these reasons include:
- Rating the credit level of a consumer
- Predicting the response from consumers to offers sent through the mail
- Predicting the likelihood that the holder of the account may file for bankruptcy
- Predicting the possibility that the account holder will move to another lender
United Sates citizens have the ability to protect themselves from fraud and identity theft because of the FACTA and the FCRA. Law abiding citizens can use their free credit reports and other tools provided to them by the FACTA to fight consumer fraud.