The threat of identify theft and how it can affect the ability to buy a home means consumers need to understand all the fine points of the Fair Credit Reporting Act.

According to the National Association of Realtors, Consumer Reporting Agencies are companies that gather and sell information about where people work and live, how they pay their bills, and whether they've been sued or arrested or have filed for bankruptcy. The information that is sold to creditors, employers, insurers and other businesses is called a consumer report. The biggest purchase of a lifetime, buying a home, could hinge on whether a Consumer Reporting Agency has the correct and current information.

The Fair Credit Reporting Act, which is under the enforcement jurisdiction of the Federal Trade Commission, is designed to promote accuracy and ensure the privacy of the information found in consumer reports. Recent amendments to the Act have expanded consumer rights and placed certain restrictions on agencies. Businesses that supply information or use consumer reports also have new responsibilities under the law.

There are three major national credit bureaus—Equifax, Experian and Trans Union—and each one may have a report filed for an individual. In addition, companies that collect information about insurance claims, Choice Point and A-Plus Consumer Inquiry Center, are also included in the new rules and regulations. If a business refuses an application for credit, insurance or employment, they must provide the consumer with the name, address and telephone number of the credit bureau issuing the report.

Consumers can always request a report that includes medical information as well as the sources of the information in most cases. In addition, the credit bureau must provide a list of everyone that has requested a report within the past year and the past two years for employment purposes. Currently, the credit bureaus can charge up to $9 for reports, but after Sept. 1, 2005, consumers will be able to obtain a free report annually from each of the national credit report bureaus.

According to the National Association of Realtors, this new requirement will be rolled out across the country from the West Coast to the East Coast beginning Dec. 1.

If a company takes adverse action against a consumer, such as denying an application for credit, insurance or employment, there is no charge for receiving a report within 60 days of receiving the notice of action. Consumers are also entitled to one free report a year if they are unemployed and plan to look for a job within 60 days, are on welfare, or have an inaccurate report due to fraud.

Under the new Fair Credit Reporting Act, both the credit bureau and the business supplying information have responsibilities for correcting incomplete or inaccurate information. The consumer must inform the credit bureau in writing if there is any incorrect data or a dispute about the information provided. An investigation is required along with a review of the information. If there are any inaccuracies, all credit bureaus must be notified so the file can be corrected. It's important to check out the details of the process and take the proper steps to correct any data that is in error.

A Credit Reporting Agency cannot supply information about an individual to an employer or a prospective employer without consent from the individual. As well, no one can obtain a report that contains medical information without approval. Only people with a legitimate business need can get a copy of a consumer's report. The company must be recognized by the Fair Credit Reporting Act and can usually get a report if a consumer applies for credit, insurance, employment or to rent an apartment.

The reason credit history is so important, especially in the home-buying process, is that it can affect the individual's credit score, which is most often based on FICO scores, created by Fair Isaac & Company. Credit scores consist of a mathematical scoring method that evaluates the applicant's record, credit card bills and other financial information. The higher the score, the better loan a homeowner can receive. It can also have an affect on how much down payment is required as well as the interest rate on the loan.

According to Fair Isaac Corporation, the FICO credit score is used to make billions of credit decisions each year, including more than 75 percent of mortgage-loan originations. More than 40 of the nation's 50 largest financial institutions rely on the FICO score to help determine an individual's credit risk.

Checking in on a credit report at least annually is one way to ensure there are no mistakes. It's also important to determine whether any identity theft has occurred. According to Fair Isaac, the U.S. Federal Trade Commission has called identity theft the fastest-growing crime in the country, with more than 11 million people victimized by identity theft in the last year.

Understanding the Fair Credit Reporting Act and keeping tabs on credit history are good ways to guard against identity theft and also help make the home-buying process easier by avoiding any credit-reporting problems well ahead of time.

For more information about credit scores, go to www.myfico.com, and to get a credit report online, go to www.experian.com, www.transunion.com or www.equifax.com.