COLLECTION AGENCY CREDIT CHECKS AND YOUR FICO SCORES

WRITER: CIELE EDWARDS

If you’ve pulled your free credit report only to discover that a collection agency has been snooping around in your file, you aren’t alone. Many consumers are horrified to discover that collection agencies can and do pull debtors’ credit records on a regular basis. Fortunately, federal law governs the circumstances under which debt collectors can peruse your credit reports.

Federal Law And Collection Agency Credit Checks

A collection agency doesn’t have the right to pull your credit report without a legally valid reason. The Fair Credit Reporting Act protects the sensitive financial information your credit history contains. The FCRA only gives collectors the right to review your credit history if they do so in connection with a debt you owe. The right to access your credit reports is known as “permissible purpose.” If you do not owe a debt to the collection agency, it does not have permissible purpose and cannot legally pull your credit reports.

Why Debt Collectors Check Your Credit

A collection agency may pull your credit history for a variety of reasons. If, for example, a debt collector does not have your current address to contact you about the debt, he may look to your credit report for that information. A collection agency might also review your credit history in order to determine whether or not you have assets or are currently employed. This information helps the company decide whether or not it is worthwhile to file a lawsuit against you for payment.

Credit Checks And Your Fico Scores

When a company or individual pulls your credit records, the pull is either a “soft” pull or a “hard” pull. Soft pulls have no impact on your FICO scores. Credit checks you conduct yourself and those performed by employers, insurance companies and utility providers are all examples of soft pulls. Hard pulls, such as those conducted by lenders, can cause your credit scores minor damage. You can expect to lose anywhere from five to 10 points each time a creditor conducts a hard pull. Unfortunately, collection agencies generally conduct hard pulls. Although five or 10 points may not sound like much, repeated hard pulls from a debt collector can do considerable damage to your FICO scores over time.

Although an inquiry from a collection agency isn’t a positive feature on your credit report, it doesn’t remain on record forever. Unlike negative account trade lines, which can remain on your credit report for up to seven years, the credit bureaus remove hard inquiries after two years. The FICO scoring system that most lenders use to evaluate your creditworthiness, however, only takes hard inquiries into consideration for one year. Thus, after a year, a collection agency’s inquiry won’t harm your credit scores, even if the credit bureaus have yet to remove it from your credit report.