- The Fair Credit Reporting Act (FCRA) regulates which companies can and cannot access consumer credit reports and under which circumstances access is permitted. According to the FCRA, any company responsible for the collection of your unpaid debts has permissible purpose to pull and review your credit history. A collection agency will often pull a debtor's credit report as soon as it purchases his account from the original creditor.
Credit Score Impact
- Credit inquiries impact your credit score differently depending on whether the inquiry in question is a hard inquiry or soft inquiry. Hard inquiries or "pulls" negatively affect your credit score, but only by five to seven points. Hard inquiries occur whenever you fill out a new application for credit or a loan and are visible to any future business that reviews your credit history. Soft inquiries, by contrast, do not negatively affect your credit score. Examples of soft inquiries include credit pulls you perform yourself and those performed by insurance companies.
Even though hard pulls traditionally involve the extension of new credit, collection agency inquiries are hard pulls. Although the damage your credit score incurs is minimal, repeated inquiries by collection agencies cause your credit score to noticeably decline.
- Your state's statute of limitations, which varies depending on your state, restricts creditors from suing you for old debts -- causing many consumers to mistakenly assume that collection agencies also lose the legal right to conduct collection activity. Even though a collection agency loses its right to force you to pay the debt by suing you, it does not lose its right to collect. Thus a collection agency can pull and review your credit report at any time. It cannot, however, place a new trade line for the account on your credit report if the original debt is more than seven years old.
Removing Collection Inquiries
- Collection agencies, like any business, make mistakes. If you notice a collection inquiry on your credit report for a debt that you do not recognize, the FCRA gives you the right to dispute the inquiry's accuracy with the credit bureaus. A collection agency only possesses the legal right to review the credit records of the debtor. If you aren't the debtor, it cannot legally pull your credit report. Should a collection agency refuse to remove the inquiry and verify its accuracy to the credit bureaus, the FCRA gives you the right to file a lawsuit against the company.