How to run a Credit Check

    By | Small Business

    For a number of legal and privacy reasons, an individual cannot get a copy of another person’s credit report without permission. The federal Fair Credit Reporting Act (FCRA) specifies under what circumstances a credit report can be obtained and by whom.

    Access to credit reports is restricted to businesses with a specific need, and to consumers who request their own report. You may get another person’s report if you have power of attorney or are the executor of an estate, or with permission. You may also obtain the report of your child, if he or she is a minor. Limitations on allowing individuals to get the credit reports of other people exist to prevent potential fraud and identity theft risks, along with other uses that would simply be inappropriate. Anyone who obtains a copy of someone else’s credit report under false pretenses can be fined substantially and jailed for up to a year.

    Only businesses or individuals with a "permissible purpose" can access your credit report. "Permissible purpose" is defined in Section 604 of the Fair Credit Reporting Act (FCRA).

    Examples of permissible purpose include:

    Accessing a credit report in connection with a credit transaction involving the consumer, For the underwriting of insurance involving the consumer, In connection with determining eligibility for a license or government benefit, or For a business transaction initiated by a consumer.

    Federal law allows potential employers to view a modified version of a potential employee’s credit report for employment purposes, which is sometimes referred to as a credit header. The main reason employers may request a modified credit report is to get an indication of a potential employee’s personal integrity and honesty by how that person manages his or her financial obligations. However, employers must obtain the potential employee’s written consent prior to conducting this inquiry. A modified credit report omits account numbers for protection and privacy.

    Under the Fair Credit Reporting Act or FCRA (15 U.S.C. §1681), employers must get an employee's written consent before seeking that employee's credit report. Many employers routinely include a request for such consent in their employment applications. If you decide not to hire or promote someone based on information in the credit report, you must give the person a copy of the report and tell them of their right to challenge the report under the FCRA. Some states have more stringent rules limiting the use of credit reports. has sample forms for obtaining permission to obtain credit and background reports, including a comprehensive and simple Background Check Permission Form for employees, and a comprehensive and simple Background Check Permission Form for consultants & independent contractors.

    There are three national credit reporting agencies that do credit checks on individuals: Equifax, Experian, and TransUnion.

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