Permissible Purpose

Understanding Permissible Purpose for Pulling Credit Reports: How Do You Know If You Have the Right?

When it comes to accessing someone’s credit report, it’s not as simple as just being curious or having a business interest. The Fair Credit Reporting Act (FCRA), a federal law in the United States, strictly governs who can obtain a credit report and under what circumstances. The concept of “permissible purpose” is central to these regulations, and anyone considering pulling a credit report must understand what qualifies and how to ensure they’re compliant.

What is “Permissible Purpose”?

A permissible purpose is a legally acceptable reason for accessing a person’s credit report. These purposes are specifically outlined in Section 604 of the FCRA. The law exists to protect consumers’ privacy and ensure that credit information is only used in situations where it’s relevant and authorized.

Common permissible purposes include:

• Credit Transactions: If a consumer applies for credit (e.g., a mortgage, auto loan, or credit card), the lender has a permissible purpose to check their credit report.
• Employment Purposes: Employers may pull a credit report for hiring or promotion decisions, but only with the applicant’s written consent.
• Insurance Underwriting: Insurers may check credit reports when underwriting policies, again with appropriate notice to the consumer.
• Tenant Screening: Landlords can obtain credit reports to assess a prospective tenant’s financial responsibility.
• Collections: Debt collectors can pull a credit report to locate a debtor or assess their ability to repay.
• Court Orders and Subpoenas: A credit report may be accessed as part of a legal process.
• Business Transactions Initiated by the Consumer: If a consumer applies for a service or initiates a transaction (e.g., opening a utility account), this can be a permissible purpose.

How Do You Know If You Have a Permissible Purpose?

If you’re wondering whether your situation qualifies under the FCRA, ask yourself these questions:

1. Is your intent tied to one of the FCRA-approved reasons? Simply having an interest in someone’s financial background isn’t enough. You must be involved in a credit, employment, insurance, rental, or legal process that justifies the report.
2. Did the consumer initiate the action? If the person in question applied for a loan, service, or job, that generally gives you a permissible purpose—assuming you follow all required procedures (such as obtaining written authorization for employment checks).
3. Do you have written authorization, if required? For employment and some other non-credit-related purposes, you need explicit consent from the consumer. Without this, pulling their credit is illegal.
4. Are you using a legitimate and legal reason, and not just curiosity or convenience? You can’t access a credit report to check up on an ex, verify someone’s income without cause, or investigate someone’s background without their knowledge.

Why It Matters

Improper access to a credit report can result in legal consequences, including lawsuits, fines, and regulatory penalties. In addition to legal risk, accessing credit data without a permissible purpose violates trust and can harm a business’s reputation.

Final Thoughts

Before pulling a credit report, always double-check that your reason falls under a permissible purpose as outlined by the FCRA. If you’re unsure, consult with legal counsel or your company’s compliance department. The bottom line is clear: access to credit information is a privilege governed by law—not a convenience for those who are merely interested.