Many consumers are frustrated by the fact that there are companies who make a profit by gathering and selling information about them to other parties. The credit reporting agencies (CRAs), Equifax, TransUnion, and Experian, all fall into this business model. The CRAs gather information from lenders, collection agencies and various other sources to create credit reports that are, in turn, purchased by companies who wish to evaluate the risk of doing business with you. Although you might not appreciate their business model or even question the legality of what they do, it is actually quite legal for the CRAs to collect and sell your data, as long as they follow certain rules.
The Rules Regarding Credit File Access
The primary statute that governs the CRAs and the users of credit reports is the Fair Credit Reporting Act (FCRA). One area regulated by the FCRA is credit privacy or, more simply, who has access to your credit report information and under what circumstances. For the CRAs to sell or otherwise disclose your credit reports to a third party, the person requesting the information must have what is defined in the FCRA as a permissible purpose.
The permissible purposes are legal reasons why the credit bureaus can share you information and they allow for the following:
Loan/New Credit Applications
It shouldn't surprise you that lenders generally purchase your credit report (or even multiple credit reports) and credit score whenever you apply for new financing. Lenders regularly rely upon credit reports and scores to determine the risk of doing business with you. This type of credit access is permissible under the FCRA, with or without your signature.
Account Maintenance by Your Current Creditors
The FCRA also permits your existing creditors to purchase and review your credit reports, whenever they want. Credit card issuers in particular routinely exercise this right and check your credit report to determine if they wish to keep you on as a customer and under what terms.
Landlords and property managers often review credit reports to assess the risk of taking you on as a tenant. The FCRA allows credit access for this purpose.
Employers also regularly purchase credit reports for use in the employment screenings of job applicants. However, the FCRA does require your signature to give permission for your credit reports to be accessed for this purpose. It is also worth noting that your credit scores are never used for employment screening, just your reports.
Another industry that relies on consumer credit information to predict risk is the insurance industry. The FCRA allows insurance companies to access your credit information for use in the underwriting and pricing of an insurance policy.
Debt Collection Efforts
If you have defaulted debt that has been purchased by or turned over to a collection agency, your credit reports may be purchased to assist that company's debt collection efforts. Your permission is not required for a collection agency to access your credit. In fact, even if you freeze your credit reports, collection agencies can still get a copy, even without your permission.
So the answer to the question, “Why are they allowed to have my credit report in the first place and sell it?” is, “because the FCRA allows them to do so.” Credit reports and the credit reporting agencies play an important role in your life. You may cringe at the idea that your information is collected and sold, yet without the CRAs and credit reports you might find yourself waiting a few months for an answer the next time you tried to apply for a credit card or loan.