Consumers are often shocked by the amount of information debt collectors have about them — including, sometimes, the amount of available credit on their credit card accounts, or that they recently paid another past-due debt. But how do debt collectors find that out? One way is by checking the debtor’s credit reports, sometimes years after they defaulted on a debt, or before they pick up the phone or send a letter to collect.
Is That Legal?
Debt collectors have the right to review your credit reports, as long as they do so in conjunction with their effort to collect a debt from you.
Specifically, the federal Fair Debt Collection Practices Act says a “consumer report” (the technical name for a “credit report”) may be furnished to someone who “intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer…” (emphasis added).
“This is pretty much a blanket rule, though it was restated in the April 2012 decision of Pyle v. First National Collection Bureau, a case decided by Magistrate Sheila K. Oberto of the U.S. District Court for the Eastern District of California,” says Jay S. Fleischman, a lawyer who helps people correct errors on their credit reports.” He goes on to explain: “In the Pyle case, the consumer pulled a copy of his credit report and saw that First National Collection Bureau had obtained a copy. The court dismissed his lawsuit against the company because First National was a debt collector, and the presumption was that it had a permissible purpose for accessing Pyle’s credit file. In the absence of proof to the contrary, the court held that First National’s actions were proper under the law.”
How Often Do They Check?
There is no specific limit, but they probably don’t check as often as you think. After all, credit reports cost collectors money. “In general, debt collectors would only pull a credit report once, either at the time they receive the account or at the time they are negotiating repayment options such as a settlement,” says Nick Jarman, president and COO of Delta Outsource Group, and a Credit.com contributor. “The main reason a credit report is checked nowadays is to validate the consumer’s statements to the debt collectors about their current financial situation.”
Unfortunately, these inquiries may be what are known as “hard” inquiries, which affect your credit rating. Generally, though, inquiries only take a few points off scores, and usually don’t count after they are 12 months old. (This guide explains how inquiries affect your credit.)
Can You Stop Them?
Probably not. If you want to stop someone from accessing your credit information, you’ll usually need to place a credit freeze on your reports. But that won’t necessarily stop a debt collector. Equifax notes on its website for example, that “companies that have a current account or relationship with you, and collection agencies acting on behalf of these companies,” are exempt from credit freezes. (Plus, keep in mind that unless you are a victim of identity theft, you’ll usually have to pay a fee to freeze and unfreeze your reports.)
The bottom line? If there are debts you haven’t repaid, there is a good chance a debt collector will review your credit reports at some point. It’s helpful for you to know what they are likely to see, and also to be alerted to inquiries from bill collectors. You can get free annual credit reports and stay on top of changes by getting your free credit scores, updated every 14 days from Credit.com.
More on Managing Debt:
- The Credit.com Debt Management Learning Center
- Understanding Your Debt Collection Rights
- Top 10 Debt Collection Rights