29
Aug

Credit Report

Guest article from BadCredit.org

Although credit reports and scores are used by millions of consumers and creditors every day, many mysteries still seem to exist around how credit really works. One of the most common of those mysteries centers on which companies and individuals can actually check your credit report or score and how that information can be used.

A fear for many consumers is that anyone with an interest, such as a nosy neighbor or spiteful ex, can request a copy of your credit report, nitty-gritty financial details included. Well, thanks to the Fair Credit Reporting Act (FCRA), your credit details are safe from the prying eyes of random citizens, curious neighbors, and even your family members.

In particular, the law stipulates that one individual may not obtain the credit report of another private individual. Furthermore, only parties with a legitimate reason to review your credit can obtain a copy of your credit report. The specific requirements for a legitimate request are defined by the FCRA, as follows:

  • in accordance with your written instructions;
  • in response to a court order or federal grand jury subpoena;
  • to manage the risk of current or potential credit or insurance accounts that were initiated by you;
  • for employment purposes, with your written permission;
  • for the purposes of a potential investor assessing the risk of a current obligation;
  • in connection with your application for a license or other benefit granted by the government, when consideration of financial responsibility is required by law;
  • in connection with a business transaction initiated by you;
  • in connection with a child support determination, under certain circumstances;
  • in connection with a credit or insurance transaction not initiated by you, when a “firm offer” of credit or insurance is extended, and certain other restrictions are met.

Essentially, the parties most likely to have a legitimate need to check your credit will be limited to government agencies, creditors (including banks, credit unions, loan providers, and credit card issuers), insurance companies, landlords, and current and future employers.

You Get to Know Who Requests Your Credit

Another requirement of the FCRA is that each credit bureau must disclose any requests made for your credit report. The actual nature of the request will determine how the credit check is reported on your credit report, namely whether it will be considered a hard credit pull or a soft credit pull. In general, the main difference between the two types of credit inquiries is for what purpose the information is being accessed.

A hard credit inquiry is a request for your credit report made by a creditor in response to an application for credit. Hard credit inquiries are listed on your credit report and are visible to other creditors who check your credit for up to 24 months after the initial inquiry. As such, hard credit inquiries will have an impact on your credit score and overall creditworthiness. While each individual inquiry will have a minimal impact on your score, those impacts add up, and a series of hard inquiries can lead to larger score decreases.

A soft credit inquiry, on the other hand, occurs when your credit is checked for reasons other than applying for new credit. This can include when current creditors monitor your accounts, you are pre-screened for marketing promotions (think credit card pre-approval offers), employers run a background check, or you check your own credit report.

Soft credit inquiries will only be listed on personal copies of your credit report, and won’t be visible to future creditors or other parties. This means that soft credit pulls won’t have any impact on your overall creditworthiness or your credit score calculations.

Other types of requests can result in either a hard credit pull or a soft credit pull, depending on the specific situation and method of making the request. These actions typically include an apartment application, a car lease or rental, establishing a new utility account, or opening a checking or savings account. If you’re unsure of the type of credit check an organization will perform, be sure to ask before signing the dotted line.

You Don’t Always Need to Give Permission

Regardless of the type of inquiry, if an organization has demonstrated a legitimate need for your credit information, most will not be required to obtain your permission first. Indeed, the only situation where a party is explicitly required to obtain your written authorization before performing a credit check is when it’s part of the employment process.

That said, while not directly authorized through written consent, most hard credit inquiries are still initiated by the consumer, typically by means of applying for something, such as a loan or an apartment. If you find hard inquiries on your credit report that were not initiated by you in any way, you may be able to have the inquiries — and the associated credit damage — removed by filing a dispute with the credit bureaus or by hiring a reputable credit repair company. Be sure to research the process to ensure you receive the best credit repair solution for you.

You can also limit the number of hard credit inquiries that impact your score by taking advantage of the rate-shopping windows provided by scoring companies. For example, when shopping for an auto loan, student loan, or mortgage, FICO will count all inquiries made within the same time period (14 days under the older scoring models, 45 days under the new model) as a single inquiry.

The thing to remember with this trick is that it doesn’t apply to every type of application, particularly revolving credit. If you were to apply for multiple credit cards while working on rebuilding your credit, for instance, each application will likely result in a separate hard credit inquiry on your credit report and a decrease in your credit score. Instead, you should shop around for the right card, such as by comparing bad-credit credit cards on CardRates.com, before you fill out any credit card applications.

You May Be Entitled to Damages for FCRA Violations

In the end, the only parties able to access your credit report are those with a legitimate reason to have that access. If you find evidence of inquiries that were made in violation of the FCRA, you may have legal means of addressing the issue.

Specifically, if you can prove a willful violation of the FCRA’s requirements, you may be able to go to court to recover damages. This applies both to violations by organizations, such as the credit bureau or information provider, as well as violations perpetrated by individuals, including cases in which an individual falsifies information to obtain your report.

Learn how you can start repairing your credit here, and carry on the conversation on CreditRepair.com’s social media platforms. Like and follow on Facebook and leave a tweet on Twitter.