How To Pull A Credit Report On Prospective Client

A credit report refers to the detailed information credit reporting agencies collect on an individual or business. It includes the person’s payment history, current debts, and other financial data. This report is crucial for lenders when extending a line of credit. The report can help you determine the level of risk you’ll bear when extending the risk. 

If the customer has a poor credit score, they may default or not repay in time. But a customer with a good score carries less risk of defaulting. It’s, therefore, crucial for lenders to pull a credit report on prospective clients before offering them a line of credit. Here’s what you should do:

Ask For Permission

A credit report is a private document, and you need permission from the customer before pulling it. Ask your potential clients to sign a form authorizing you to access their credit reports. In some countries, it’s mandated by law that customers give their consent before pulling a credit report on them.

The best way to get permission from your client is by getting a written or digital agreement. If the permission is oral, then record the authorization. Alternatively, you can include a checkbox or button next to the disclaimer indicating that the customer has permitted you to pull their credit report.

Contact The Credit Bureau

Once you have permission from the customer, contact the credit bureau and ask them to provide you with a copy of your client’s credit report. The bureau will require information such as the customer’s name, date of birth, and Social Security number. It’s also essential to have an address for the customer, which proves that the person is indeed who they say they are.

To ensure an accurate and up-to-date report, get a credit report from all three major bureaus: TransUnion, Equifax, and Experian. Each organization can provide a copy of your customer’s credit report. Alternatively, you can use a credit pull solution to get all three reports in one place. Click here to see how such solutions work. 

Provide The Necessary Documents

You’ll need to provide some documents to prove your identity and authority. These include a copy of your business license, tax identification number, and articles of incorporation if you’re a corporation. The credit bureau will also require some information about how you intend to use the report so that it can comply with the Fair Credit Reporting Act (FCRA).

As earlier stated, while the credit report is private, some groups have legal access to it. Therefore, you must prove that you fall into this category of people who can access the report. 

Analyze The Report

Once the bureau provides you with your customer’s credit report, analyze it to determine if they are a reasonable risk. When analyzing the report, there are some crucial elements you need to know about. They include: 

• The Categories Of Information: Despite the discrepancies in how the three credit bureaus present their reports, they often follow a similar format. This includes personal information, public records, and negative items. 
• Identifying Information: This includes the customer’s name, Social Security number, address, and date of birth. Additionally, any previous addresses will be listed. The previous names will also be included if the person changes their name because of marriage, divorce, or nickname. 
• The Person’s Credit Accounts: This section lists all the accounts on the customer’s credit report. It includes three types of credit accounts: mortgages, revolving credits, and installment credits. The information on each account includes the creditor’s name and contact information, the opening date of the account, credit limit or loan amount, payment history over some time, current balance due, and if there have been any late payments or delinquencies.
• Public Record Information: This includes bankruptcies, tax liens, and judgments.
• Negative Items: These include late payments, delinquencies, and any other information that could negatively affect the customer’s credit score. 

Once you have thoroughly analyzed the report, then you can make a decision on whether to proceed with the loan or not. You should reconsider your decision if the report has too many negative items. 

• Inform The Customer

After making the decision, inform your customer of the outcome. Explain what information you used to reach that conclusion and how it affects their loan application or credit line. Be sure to provide them with a copy of their credit report so they can review it themselves. 

Additionally, you should inform the customer what credit bureau you used to get the report and how you plan to use their information. It’s also important to inform them that the bureau does not participate in decision-making. 

Keep The Customer’s Permission And Credit Report

Lastly, keep a record of the customer’s permission and the credit report in case you are ever audited. These documents prove that you followed all the necessary procedures required by law. The recommended period for keeping a customer’s permission to have their credit checked is up to two years.

Are You Eligible To Check A Credit Report?

Checking someone’s credit report requires that you have a permissible purpose. The permissible purpose is determined by the FCRA and includes the following:

• Employment Purpose: Checking a prospective employee’s credit report as part of the hiring process. Therefore, if you are an employer, you are legally allowed to check the credit report of a potential employee.
• Screening Potential Tenants: Landlords often check the credit report of prospective tenants to determine their creditworthiness. It helps them avoid taking in people who’ll have problems paying their rent. 
• Screening For Credit Eligibility: Some lenders require you to check a customer’s credit report before granting them a loan or credit line. This helps the borrower repay the loan and stay current on their payments. 
• Guarding Against Identity Theft After A Spouse Dies: When a spouse dies, their credit information can be used to commit fraud or identity theft. Checking their credit report will help ensure their accounts are no longer being used. 

Conclusion 

Pulling a credit report on prospective clients is essential in helping you make an informed decision. This article has provided the information you need to understand what a credit report includes and how to check it legally. You can now use the guide to evaluate potential borrowers and tenants.