CREDIT CHECKS AND YOUR FICO SCORES

If you’ve pulled your free credit report only to discover 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.

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 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, and collection agencies generally conduct hard pulls. Five or 10 points may not sound like much, but repeated hard pulls can do considerable damage to your FICO scores over time. Although an inquiry from a collection agency isn’t a positive, 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 most lenders use to evaluate your creditworthiness, however, only takes hard inquiries into consideration for one year. 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.