In a breakthrough for consumers dogged by faulty credit ratings, a federal appeals court yesterday cleared the way for individuals to sue companies that provide inaccurate information to credit reporting agencies.

Lawyers said the ruling by the U.S. Court of Appeals in San Francisco was the first by an appellate court on a consumer's right to sue a furnisher of credit information under the Fair Credit Reporting Act of 1970.

Allowing private lawsuits serves the law's purpose "to protect consumers against inaccurate and incomplete credit reporting," said Judge John Noonan in the 3-to-0 ruling. He noted the Federal Trade Commission had sided with the consumer in the case.

The law allows a consumer to seek damages against anyone who deliberately or negligently provides inaccurate credit information. It also requires regular providers of information to keep it up to date and allows consumers who sue successfully to recover attorneys' fees. Punitive damages may apply only to willful violations.

The court reinstated a lawsuit by a Las Vegas man, Toby D. Nelson, against Chase Manhattan Mortgage Corp. for allegedly supplying misleading information about him to credit reporting agencies.

Nelson and a friend co-signed a mortgage loan from Chase Manhattan in 1995. After the friend declared bankruptcy in 1998, Nelson kept paying off the loan but said he began having problems getting other loans. He checked with a credit reporting agency, which told him it had received a report that the mortgage loan account was included in a bankruptcy proceeding.

Nelson said he told both the credit agency and Chase Manhattan that the bankruptcy report was erroneous but couldn't get them to remove it. He later settled a suit against the credit agency for a confidential amount, said his attorney, Mitchell Gliner.

A federal judge dismissed Nelson's suit against Chase Manhattan, saying the law could be enforced only by federal and state agencies, not private citizens.

The appeals court disagreed, saying the law was intended to protect consumers.

The ruling is important, said Gliner, because without the threat of a damage suit, banks and other companies that provide credit information "very often will be indifferent to the plight of an individual."

Gerald Waite, a lawyer for Chase Manhattan, said the company believes it provided accurate information and will prevail at trial.

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