Once upon a time, credit reports were used only for credit. Now, companies use it for a lot of decisions. Find out what is legal and what is not.

Companies use it to decide whether to give you a job. Insurers use it to set your insurance premiums. Before long, I wouldn’t be surprised if people start using it before blind dates! (Oh wait, that’s what Facebook is for).

That last one was a little tongue in cheek because, by law, you aren’t allowed to pull someone’s credit to see if they’d be a good date. The law that prevents that is the Fair Credit Reporting Act, which specifically states what a credit report can be used for under §604:
• Applications for credit, insurance, and rentals for personal, family or household purposes.
• Employment, which includes hiring, promotion, reassignment or retention. A CRA may not release a credit report for employment decisions without consent.
• Court orders, including grand jury subpoenas.
• “Legitimate” business needs in transactions initiated by the consumer for personal, family, or household purposes. (litigation is not legitimate by 3rd parties)
• Account review. Periodically, banks and other companies review credit files to determine whether they wish to retain the individual as a customer.
• Licensing (professional).
• Child support payment determinations.
• Law enforcement access: Government agencies with authority to investigate terrorism and counterintelligence have secret access to credit reports.

(courtesy of the Electronic Privacy Information Center’s page on the FCRA)

You might only agree with the first item on the list, the only one that uses the word “credit,” but the FCRA grants pretty wide rules for the use of credit reports (sorry, dates not included). Credit reports and credit scores are becoming far more important than they were ever intended, having a good understanding of what is legal helps curb the more creative uses.

This is especially important for anyone being harassed by debt collectors. Debt collectors, in their zeal, will sometimes violate the FCRA when pulling someone’s credit report. If they pull your credit report under false pretenses and use that information against you, you can be awarded damages. A good example is if they threaten to have you evicted because they find out that you own a house (mortgages are listed on report). That’s illegal under the FCRA.

Do you think credit reports are becoming too pervasive? Credit scores far too important?

Jim writes about money issues on a daily basis at personal finance blog Bargaineering.com.

(Photo: jadedhalo)

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