Hard Credit Pulls By Collection Agencies
Debt collectors will jump through hoops to find you. They'll call your family, hire skip tracers to dig through your county's real estate records and even pull your credit report. That's right – a collection agency that's not even on your credit record can still pull your report.
What's worse is that legally, a collection agency doesn't need your permission to pull your credit file. When you take out a loan or apply for a new credit card, somewhere on the application is a notice that the company intends to do a credit check as part of the approval process. Some will even ask that you provide the company with written permission for it to pull your credit reports. While some businesses require your permission to pull your credit report, not all do.
Federal law does not require any business that needs access to your credit records to conduct a financial transaction to obtain your permission beforehand. Most, however, do so anyway. It's a way of covering all the bases in the event that your application gets turned down and you're just psycho enough to file a non-permissible purpose lawsuit for the credit pull.
Yes, people do that.
So the bank avoids this bit of nastiness by getting your John Hancock on the credit inquiry form even though its not a legal requirement. What if a collection agency asked for your permission to pull your credit? Would you allow it? Not if you had a lick of sense, you wouldn't. Collection agencies know this and never bother to ask your permission. While some companies, such as employers and insurance providers, must obtain your written permission, collection agencies fall into the group that doesn't. Its perfectly legal for them to pull your credit.
Here, check out Section 604 of the Fair Credit Reporting Act and see for yourself.
Hard Pulls Drop Credit Scores
There are two kinds of credit pulls – hard pulls and soft pulls. Soft pulls don't affect your credit rating. You conduct soft pulls whenever you pull your own credit. The aforementioned employers and insurance companies? They also conduct soft credit pulls. Another benefit of soft pulls other than the fact that they don't impact your credit score is that no one else can see them. That's right, only you can see the record of soft pulls on your credit report.
Hard pulls are a bit different. Each hard pull a company conducts drops your credit score several points. It really depends on how high your credit was to begin with, but in general you can expect to lose about 5 points from a hard pull. Hard pulls are also visible to anyone else who happens to look through your credit report.
Collection agencies conduct hard pulls. So not only does the company drop your credit score by several points, their inquiry into your credit history is visible by all of your other creditors and lenders and anyone who views your report in the next two years – after which the credit bureaus will remove the collection agency's inquiry.
Disputing Hard Inquiries From Collection Agencies
You have the right to dispute hard inquiries on your credit report just like any other item. Your dispute has the greatest chance of being successful if you previously sent the collection agency a debt validation letter and have yet to receive a response. Keep in mind, however, that no matter how frustrating it may be, debt collectors have a legal right to access your credit records.