The primary purpose of your credit report is to demonstrate your creditworthiness to lenders and creditors. In other words, your credit report can help companies decide whether to approve or deny your loan and credit card applications.
But lenders and credit card companies aren’t the only ones that can pull your credit report. In fact, your credit report is available to many third parties, some of whom can pull your credit without your knowledge. But first, they must have a “permissible purpose.”
Under the Fair Credit Reporting Act (FCRA), only users with a legal “permissible purpose” may pull a copy of your credit report. There are many permissible purposes, including:
• When you apply for credit, or when an existing creditor is reviewing or initiating collections.
• When a court or federal subpoena orders it.
• When the consumer has instructed the party in writing to access their credit report.
• When a potential employer requires a credit check as part of the hiring process.
• When you apply for insurance.
• When there is a legitimate business need as part of a business transaction.
There are several other permissible purposes, but the main takeaway is that there must be a legitimate government or business need to pull your credit report. Common examples are that you have applied for a credit card or loan, you have applied for insurance, an employer is checking your credit as part of the hiring process, or you are the subject of a criminal or civil investigation.
If the third party does not have a permissible purpose, your credit report is legally untouchable. That means your ex-husband, neighbor, friends, and relatives can’t pull your credit report. And in many cases, even if the party does have a permissible purpose, you still need to provide written consent.
Who Can Check Your Credit Report?
The list of companies and third parties that can pull your credit report may be longer than you think:
• Creditors and Lenders: when you apply for credit (such as a credit card, auto loan, or mortgage), the creditor or lender will pull your credit report to gauge your creditworthiness.
• Landlords: when you submit a rental application, landlords may require a credit check. They will pull your credit report to look for red flags and make sure you can reasonably afford the rent.
• Employers: in some states, employers can check your credit before extending a job offer.
• Collection agencies: if you have an account in collections, the collection agency may periodically pull your credit report.
• Utility companies: utility companies may check your credit report when you become a new customer.
• Government agencies: if you apply for certain types of government assistance, or if you are under investigation, certain government agencies can pull your credit report.
• Credit monitoring and credit repair services: if you hire a service to help you monitor or repair your credit, they may pull your credit report on a regular basis. Some credit repair services will ask you to provide them limited power of attorney, allowing them to pull your credit and act on your behalf.
Soft Inquiries and Hard Inquiries
Not all credit inquiries are the same: there are hard inquiries and soft inquiries.
Hard inquiries occur when a potential lender pulls your credit report to make a decision on an application. This will occur when you apply for a credit card or loan. Hard inquiries can show up on your credit report and lower your credit score temporarily, though the long-term damage is minimal. It’s a good idea to not initiate too many hard inquiries in a short period of time. Hard inquiries generally only take place with your permission.
Soft inquiries usually occur when your credit report is pulled as part of a background check. This will occur when you are preapproved for a loan or a potential employer is checking your credit. These inquiries may or may not occur with your permission, but they don’t affect your credit score.