If you’re thinking about moving into a new place or getting a new job in 2014, you’ll want to get your credit together to avoid any nasty problems. A reader of AskTheMoneyCoach.com recently asked me whether or not her landlord could pull her credit. And I don’t mean just pull her credit when deciding whether or not to let her move in; I mean after she’s been living there for many years.
The landlord, as it turns out, was pulling not only her credit, but all the tenants’ credit reports month after month after month! Well, as shocking as this might be for some of you to learn, it actually is legal for landlords to pull your credit report and to do so repeatedly.
Even thought it may not seem fair, there’s a federal law called the Fair Credit Reporting Act. And under Section 604 of that Act, there’s a little phrase called “permissible purpose.” Basically, it refers to whether or not any business or entity has a legitimate business need (or a “permissible purpose”) to pull your credit.
If they do have such a need, it’s 100% lawful for them to review your credit history.
Historically, companies like credit card issuers, banks, mortgage lenders, student loan firms and auto finance businesses have all been among those institutions that naturally have a “permissible” purposes for examining your credit. And that makes sense, considering they’re trying to decide to whom they should loan money.
Well, likewise, landlords are entitled to pull your credit because they want to see how you’ve handled housing payments, whether that’s rent or a mortgage. And landlords obviously might have a few questions if they see things like evictions or foreclosures in your credit reports.
Beyond that, however, some landlords may even continue to pull your credit reports that are on file with TransUnion, Equifax and Experian. Why would they do this? Mostly, they’re trying to see if you are maintaining your bills or if you have other income sources, especially if you live in a rent-controlled building or a residence where you must be a low-to-moderate income household.
Although such prying may seem overly invasive, the good news is that there are some limitations on all this.
Your Credit and Your Employer
Employers, for example, can also pull your credit report when you’re applying for a new job or even when you’re trying to get a promotion or a raise. (Did you know this?) Fortunately, employers must first get your permission. So they won’t just pull your credit report without notifying you in advance and getting your social security number.
So the key thing to realize is that when you apply for a job and authorize a potential employer to check your credit—or when you sign that rental contract—you’re giving someone permission to review your credit history. Those entities are now deemed to have a “permissible purpose,” which remains for as long as you have dealings with the business or organization.
On the job front though, an employer’s ability to peek into your credit report may not stay legal for long.
That’s because Senator Elizabeth Warren (D-Massachusetts) and six other senators recently proposed the Equal Employment for All Act. Under the bill, employers would be barred from requiring would-be workers from undergoing a credit check. Employers would also be prohibited from rejecting applicants based on negative information found in someone’s credit report.
Warren called employment-based credit checks unfair and discriminatory—especially in the wake of the Great Recession, when many Americans got behind on their bills.
What do you think: Should employers have the right to pull a job applicant’s credit? Or should this practice be legally banned?
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