Any time a business reviews your credit report, a record of the inquiry appears in your credit profile for you to review. Although some companies, such as your employer, need your permission before they can legally review your credit files, lenders, creditors and even debt collectors have the right to pull your credit report without obtaining your prior consent.
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A collection agency can review your credit report without your consent, because it has a "permissible purpose" to do so under federal law. According to the Fair Credit Reporting Act (FCRA), any industry with a "legitimate business need" has permissible purpose to access your credit reports without your permission. Because the information within your credit record can help the collection agency's debt recovery efforts, the company can demonstrate a legitimate need for the information if challenged.
Collection agencies pull consumer credit reports for a variety of reasons. Your credit report contains your most recent address and, sometimes, your employment information. A debt collector that cannot locate you can use your contact information to mail you notice of the debt or call you at your place of employment.
Collection agencies also pull credit reports to become aware of your current debts and assets to determine whether you have the means to pay off the debt and are a candidate for a lawsuit.
Debt collectors conduct a "hard" rather than "soft" credit inquiry when they run your credit report. A soft inquiry does not impact your credit score and is not visible on your credit report to anyone other than you. Hard inquiries lower your credit score slightly and remain on file for two years. Most consumers lose no more than five to seven points on their credit score from a hard inquiry. Repeated credit inquiries by a collection agency, however, can cause considerable damage to your credit rating.
Although you cannot prevent a company from accessing your credit records if that company has permissible purpose to do so under the law, the FCRA gives you the right to sue any company or individual that accesses your credit records without permissible purpose or your consent. If you do not owe a debt to the collection agency that reviewed your credit report and the company refuses to remove its inquiry from your credit profile, you may file a lawsuit against the collection agency in either state or federal court.
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