PRINTABLE: Protecting Your Credit--The FACT Act in Layman's Terms

Thursday, November 21, 2024

Protecting Your Credit--The FACT Act in Layman's Terms
by Amy L. Cooper-Arnold

Amy L. Cooper-Arnold has been a reporter for CardRatings.com since 2004. Her articles have been republished by respected publications throughout the country, including Young Money Magazine, E/The Environmental Magazine and About.com. Amy recently graduated with honors from Austin Peay Univ. and is currently taking graduate-level classes.

Do you know all the implications of identity theft? Do you know that an imposter can open lines of credit, drain your bank account, file for bankruptcy, get an ID card, get a job, and even be arrested all in your name? All the missed payments an imposter doesn’t make are reported in your credit file causing your credit score to suffer.

And according to Liz Pulliam Weston, author of Your Credit Score and MSN Money personal finance columnist, a poor credit history affects your whole financial life. It’s not only creditors who have access to your report, but also insurance agencies and potential employers.

So if you are victimized by identity theft, not only may you not be able to open new accounts and qualify for low interest rate loans, but you may pay more for insurance, and you just might not be able to get a job. Top it all off with a warrant for your arrest when the imposter fails to show up for their court date and you have a scenario that doesn’t sound like any fun at all!

Your credit report and score are among the most valuable life tools you have. With an error-free report you can live in freedom from the terror of identity theft; and with a high credit score, you have a powerful foot in the door for negotiating low-rate loans, lower insurance rates, and job opportunities. With so much at stake, it seems only natural that you, the consumer, should have an open door for maintaining these financial tools at the highest level of accuracy. It seems so simple, and the fact of the matter is that with the Fair and Accurate Credit Transactions Act (FACTA) of 2003, it’s getting simpler.

Free Annual Credit Report

One of the most significant provisions of FACTA, according to Weston, is the right to a yearly free credit report. Experts have recommended for years that consumers get their credit report annually to check for errors because through your credit report you will get the first indications of identity theft. But until recently, the three largest credit reporting agencies have charged a fee for a report.

Now that it’s available for free, consider setting a yearly date—perhaps tax day, the first day of winter, or even your birthday—to easily and cheaply follow the experts’ advice, and in the process, prevent the headache of recovering from identity theft. Some experts also suggest that you get one of your three free reports every four months (each credit reporting agency issues a unique report). This strategy allows you to stagger your reports throughout the year and is a further safeguard against id theft.

You Have the Right

To be told if information in your file is used against you.
To know what is in your report
To ask for a credit score
To give or not to give your consent for your report to be shared with employers
To dispute incomplete or inaccurate information
To limit prescreened offers of credit and insurance you receive
To seek damages from violators
To have credit reporting agencies correct or delete inaccurate, incomplete, or unverifiable information
To not have outdated negative information reported
To limit access to your file to those with a valid need only

The easiest way to obtain your free credit report is to go to the web site AnnualCreditReport.com. It is sponsored by the three big credit reporting agencies—Equifax, Experian, and TransUnion. It is important that you do not go to the individual reporting agencies sites because from there you have to sign up for a free 30 day trial to get your free report. Then, if you don’t opt out of the service before the 30 days is over, they will automatically begin charging you the monthly fee.

Through AnnualCreditReport.com, you can request a report online, download the request form and mail it in, or make a phone call and go through a simple verification process. Expect to answer some questions only you should know about information in your credit file as part of the verification process online and over the phone. Keep in mind that according to the FTC web site, AnnualCreditReport.com will not request personal information through e-mails, phone calls or pop-up ads, so if you receive any of these, stay on the alert for fraud.

You are entitled to reports from other companies that develop reports as well. To review your medical records or payments, Weston recommends getting a free report from The Medical Information Bureau. If you want to review your residential, employment, or insurance claims history, then you can request a free report from ChoiceTrust.

Preventing Fraud through Alerts

FACTA has also provided ways for quickly stopping fraudulent activity. In the past, a stolen identity meant making numerous phone calls to all your credit card companies as well as to the three major credit reporting agencies. Now all it takes is one phone call to one credit reporting agency to place a fraud alert. The one agency you contact will then contact the other two. You will have to provide proof of your identity, and if you want it to remain on your account for longer than 90 days, you must make a request. Making such a request will extend the alert up to 7 years.

A new type of alert for active duty military has also been created. Military members can place a notice on their credit file for 12 months to alert creditors of the potential for fraud. If you are in the military and will be out of the country longer than 12 months, then you can request another alert after the first one expires. This is a great help for military members who are working outside of the country and may not have the means necessary to keep tabs on their accounts, making them particularly vulnerable to fraud.

When you place the initial alert, you are also entitled to a free copy of your credit report. If you choose to extend the alert to 7 years you can get two more free copies of your credit report within the 12 months after placing the alert in your file.

Some Identity Theft Stats to Consider

3.23 million consumers discovered new accounts opened by an identity thief
300 million hours spent by victims in correcting the problem
6.6 million consumers discovered misuse of an existing account
$48 billion in losses to businesses
$5 billion in losses to individuals

Source: An FTC prepared statement (June 2004) on Identity Theft and Social Security Numbers

With all types of alerts, when a creditor receives a request to open a new account in your name, they will be required to make a reasonable effort to contact you to verify your desire to open the account. According to Weston, while it forces creditors to take some action (in the past they would typically ignore alerts), it still falls short of consumer advocates’ desire to require creditors to contact you by telephone.

Weston says FACTA also falls short in giving consumers the option to freeze their credit report—something currently available only to residents of 12 states. With this freezing option, the consumer is normally given a PIN with which they can unlock their credit report when they know they are going to apply for credit. It reduces the chances for identity theft, cuts down on instant credit offers, and keeps customers from spontaneously applying for credit cards they may not need.

Protecting the Essentials

Identity thieves are after your credit card, debit card, and social security numbers. Once stolen, the thief can easily masquerade as you opening accounts and making purchases.

In a 2004 prepared statement before the subcommittee on social security of the House Committee on Ways and Means, the Federal Trade Commission said, “The potential for misuse arises because Social Security numbers are crucial to the proper functioning of our financial system. Social Security numbers are used to match consumers to their credit and other financial information.”

The report continues, “Without them, information may be attributed to the wrong consumer, and the accuracy of credit reports may be degraded. Enabling Social Security numbers to be used appropriately will help to ensure that consumers continue to enjoy the benefits of our current credit system.”

To help protect these vital numbers, the Fair and Accurate Credit Transactions Act (FACTA) has put into effect a national standard of not fully printing social security numbers, and credit and debit card numbers on credit reports and receipts. When you request your free credit report, request that your SSN be printed with only the last four digits.

Fight Back Against Identity Theft

Download An FTC Publication in Response to FACTA

AND LEARN...

How identity theft occurs.

What immediate steps to take if you have been the victim of identity theft.

How to resolve specific problems such as fraudulent withdrawals, bankruptcy fraud, mail theft, passport fraud, tax fraud, etc.

Tips for staying alert.

Ways to minimize recurrence.

About your computer and identity theft.

Debit and credit card receipts may only print the last five numbers of the account or the expiration date. This provision will take time before going into full effect, and it does not include merchants who use only handwritten or imprinted receipts. Merchants have three years to comply if their machines were put into use before January 1, 2005. And if their machines are put into use after January 1, 2005, then they have one year.

Under FACTA, businesses are also required to take steps to protect credit card, debit card, and social security numbers. The FTC and banking regulators worked together to layout guidelines to make sure sensitive consumer information is protected through the proper disposal of information no longer needed by the company. While the provision gives specific examples that meet the disposal standard, it remains flexible, allowing businesses to determine the best method based on the degree of the information’s sensitivity, the costs of different methods, and changes in technology.

Provisions for Victims of Identity Theft

If you are a victim of identity theft, once you submit an identity theft report to the credit reporting agency, they must immediately stop reporting the information in your credit file. The credit reporting agency must then also notify the creditor reporting the fraudulent information, which must in turn also stop reporting the information. From that point on the creditor cannot sell, transfer, or place into collection the debt that resulted from the identity theft. You may also want to give the identity theft report directly to the creditor to prevent them from continuing to report the fraudulent information.

In order for this block to take effect, you must provide appropriate information to verify your identity—full name, current or recent full address, full SSN, and/or date of birth. Additional proof including copies of government-issued identification documents, utility bills, and answering questions only you would know may also be requested.

In addition, you are entitled to receive copies of the thief’s application and account transactions, which can also be given to any law enforcement agency at your request. You will have to provide proof of your identity, and the business you request the information from may also require a copy of the police report and identity theft affidavit. Send your written request to the business at the address they specify along with all information including dates and account numbers. This documentation will help prove you have been a victim; for example, by proving the signature is not yours.

Creditors are also now required to give you notice before any negative information is given to the credit reporting agencies. While this may help you catch fraudulent activity early on, you must still be diligent about checking your credit report yearly. Keep in mind that an identity thief usually gives creditors an address different from yours, so you may in fact never receive the early warning. In addition, if you happen to throw the notice out, there is no second chance as creditors are required to notify you only once.

Credit Scores

Through the measures implemented by FACTA, the magic behind the number creditors use to determine your eligibility for loans and lower rates has been revealed. You can request not only your credit score, but also an explanation of the factors used to compute the score; however, unlike free credit reports, you will be charged a fee for your score. The largest credit scoring company, Fair Isaac & Co., has released details on their method of calculating scores. Read our article On the Path to a High Credit Score to learn the details.

In summary, the FACT Act has many family consumer-friendly provisions that can help consumers protect their credit and identity. Weston sums it up best,

"You need to stay on top of your credit because it really does affect your whole financial life!"

For more information on FACTA, visit the FTC web site and click on the link entitled Fair Credit Reporting Act.

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