Many organizations, ranging from lenders to landlords, pull credit when they receive applications. For example, when you apply for a new loan, your prospective lender will want to check your credit score to make sure you are a trustworthy borrower.
To protect your credit score and ensure it isn't misused, lenders and other consumer reporting agencies must have a permissible purpose for pulling your credit. Let's take a closer look at what permissible purpose is, why it's important, and how it can affect your financial decisions going forward.
In a nutshell, a "permissible purpose" is a legitimate, reasonable purpose to pull a consumer's credit information. Every consumer reporting agency – such as Equifax, TransUnion, and Experian, the three big credit bureaus – must have a permissible purpose to pull consumer credit information anytime they wish to do so. Furthermore, lenders, landlords, and other organizations must have permissible purposes for seeking out consumer credit information.
Put another way, a permissible purpose is a reason to look at someone’s credit history or credit score. It’s an important concept and right under the Fair Credit Reporting Act (FCRA) that protects consumer credit information from needless examination.
Imagine a scenario where you want to apply for a mortgage so you can buy a house. When you apply to a lending institution, like a bank, the loan officer requests written confirmation from you, the borrower, to check your credit. The lender has a permissible purpose to pull your credit, as your creditworthiness is a good indicator of your trustworthiness as a borrower.
When you sign the request form, you’ve permitted the lender to look at your credit information.
In contrast, say that you want to purchase a car in cash for its full value. The car dealer also tries to pull your credit information. However, since you are paying for the car in cash, there's no reason for the car dealer to look at your credit info, so it does not have a permissible purpose.
Permissible purpose is important primarily to protect consumer credit information.
Each time a company or organization checks a consumer's credit score, it counts as a "hard" credit check. Hard credit checks decrease credit scores by a few points each time. This is intended to stop consumers from constantly applying for new loans or lines of credit, but it also has the potential to do major damage to consumer credit scores if too many organizations pull credit in a short time span.
Furthermore, permissible purpose protects consumers by preventing lenders and other companies from looking at credit information needlessly. An individual or company, like your boss at work or a retail store, can’t look at consumer credit information “just because.” They have to have an established, legitimate reason to do so.
This guideline prevents discrimination and ensures that credit info is responsibly used as a tool rather than as a way to discriminate against certain customers or employees.
Companies can establish permissible purpose by getting written consent from a consumer. According to the FCRA, verbal consent (even documentation of that consent, like a recording) is not enough to count as consent, nor is it enough to get a consumer’s credit report.
Alternatively, organizations may have permissible purpose established by default if the consumer approaches them for a service or purchase that applies to their credit/credit score.
For example, if a consumer applies for a loan from a bank, the bank automatically has a permissible purpose to check their credit. The law assumes that a loan is a good enough reason to look at a consumer's credit score. In these cases, the institution or organization in question doesn’t need written consent. However, many companies still acquire written consent just to be safe.
Lastly, companies can establish legitimate business needs for consumer credit information and get a permissible purpose that way. To do this:
In most cases, you’ll know that a company is establishing permissible purpose when they ask you for written consent or a signature showing that you’ll allow them to look at your credit score.
If an organization like a lender, property management company, or employer pulls a consumer’s credit information without a permissible purpose, they are violating the consumer’s rights under the FCRA. As a result, they could be held liable for legal action, up to and including a lawsuit.
In that case, it’s a good idea to contact credit report error attorneys like Fair Credit. Knowledgeable, specialized attorneys can provide you with many forms of assistance, including:
If your lawsuit is successful, you could recover up to $1000 or much more in damages depending on the specifics of your case and the true damage that was done to your creditworthiness/financial records. It's important to stand up for your rights as a consumer if they are violated. Your credit score and information are vital for your financial and employment prospects, so don't let companies use or abuse them for no reason.
Ultimately, you deserve legal representation if your rights under the FCRA are violated. If you believe a credit reporting agency or their company has pulled your credit without a permissible purpose, you could have grounds for a successful lawsuit. Contact Fair Credit today to learn more.