What does the Fair Credit Reporting Act (FCRA) limit regarding derogatory credit?

What does the Fair Credit Reporting Act (FCRA) limit regarding derogatory credit?

• A. Reporting of all financial obligations
• B. Reporting of credit inquiries
• C. Reporting of bankruptcy for 10 years
• D. Reporting of derogatory information except bankruptcy for 7 years

Answer: (D)

The correct answer highlights a significant provision of the Fair Credit Reporting Act (FCRA), which establishes the duration for which derogatory credit information can be reported. Under the FCRA, most negative information, such as late payments or collections, can only be reported for seven years. However, bankruptcy has a separate reporting duration of up to ten years. This limitation is crucial as it ensures that individuals are not perpetually hindered by past financial mistakes. The FCRA thus aims to provide a balance between allowing creditors to assess creditworthiness based on past behavior while also enabling consumers to recover from financial difficulties over time, ensuring that obsolete negative information does not unfairly impact their access to credit. The other options do not align with the FCRA's regulations regarding the reporting timelines of derogatory credit. The reporting of all financial obligations encompasses broader categories beyond just derogatory credit events, and the grace period for credit inquiries varies and does not directly relate to derogatory reporting durations.

The correct answer highlights a significant provision of the Fair Credit Reporting Act (FCRA), which establishes the duration for which derogatory credit information can be reported. Under the FCRA, most negative information, such as late payments or collections, can only be reported for seven years. However, bankruptcy has a separate reporting duration of up to ten years. This limitation is crucial as it ensures that individuals are not perpetually hindered by past financial mistakes.

The FCRA thus aims to provide a balance between allowing creditors to assess creditworthiness based on past behavior while also enabling consumers to recover from financial difficulties over time, ensuring that obsolete negative information does not unfairly impact their access to credit.

The other options do not align with the FCRA's regulations regarding the reporting timelines of derogatory credit. The reporting of all financial obligations encompasses broader categories beyond just derogatory credit events, and the grace period for credit inquiries varies and does not directly relate to derogatory reporting durations.