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Your credit history contains highly sensitive information, and the last people you probably want perusing that personal data are debt collectors. While companies must generally have your permission before requesting copies of your credit records, under certain circumstances collection agencies can access your credit history from all three credit bureaus without your consent.
According to the Fair Credit Reporting Act, which regulates the laws governing consumer credit reports, any business can access your credit history without your permission provided the business has a valid “permissible purpose.” The FCRA notes that one such permissible purpose is to review your credit information in connection with the collection of a debt. Thus, if you owe money to a debt collector, the debt collector has the legal right to pull and review your credit report.
Debt collectors have a variety of reasons for wanting access to your credit reports. One reason a debt collector might conduct a credit inquiry is if the company cannot locate you. Your credit report contains your current and past addresses – making it easier for the company to track down your current whereabouts and contact you about your debt. Also, if you have been paying the majority of your other bills on time this will be reflected on your report and the debt collector will know that you may have the means to pay the full amount on the debt he is attempting to collect and will be less likely to negotiate with you on payment terms.
When a company conducts a credit inquiry, that inquiry falls into one of two categories: a hard pull or a soft pull. Soft pulls are generally inquiries that are not directly connected to a financial transaction. For example, you conduct a soft pull when you pull your own credit report to review it for accuracy. Hard pulls, however, are directly connected to financial transactions and can cost your credit score several points each time they occur. Because collection agency inquiries are hard pulls, repeated inquiries from a debt collector can hurt your credit rating.
However, if you live in California, a case decided in 2007 (Pintos v. Pacific Creditors Association) limits the debt collector’s ability to only pull your credit report in a situation where the credit transaction was voluntary.
A “voluntary” credit transaction involves any situation where there is an expressed extension of credit. For example, credit card debt involves a voluntary credit transaction. Revolving charge cards and store credit would qualify. Thus, collections on such debts would permit the pulling of a credit report.
Bad checks, on the other hand, are not voluntary credit transactions under California law. Medical debts would have to be examined on a case-by-case basis but, as a general rule in my judgment, the answer is they do not involve credit transactions.
For a debt collector to have the legal right to pull your credit report without your consent, you must owe the company a legitimate debt and it must stem from a voluntary credit transaction. If the debt collector is pulling your credit in error, the Fair Credit Reporting Act gives you the right to dispute the inquiry in an effort to have it removed from your credit report and sue the debt collector in court for damages.
The purpose of this column is to provide general information on the law, which is subject to change. It is not legal advice. Consult a lawyer if you have a specific legal problem.
Published: July 4, 2013 – Volume 12 – Issue 12