A Knowledge Based User Friendly Approach

Have You Checked Their Credit?

Put On Your Reading Glasses And Check Their Credit History

Know Your Credit History And That Of Your Debtors

By Robert Duplicki      Updated December 16, 2022

As the holder of a note, you are a creditor. The Fair Credit Reporting Act (FCRA) permits you to obtain a credit report on the payor of your note. The FCRA also permits prospective creditors to obtain information used in assessing a consumer's creditworthiness.

If you research other sources about this topic, you may find differing views about the right to check someone's credit history. But these rights are based on law not opinion. Today the Consumer Financial Protection Bureau(CFPB) has rule-making authority for most sections of the FCRA. On December 21, 2011, the CFPB restated FCRA regulations under its authority at 12 CFR Part 1022 (76 Fed. Reg. 79308). CFPB Consumer Laws and Regulations are available in PDF at this link.

Quoting from the CFPB manual referenced above, "The FCRA requires any prospective user of a consumer report, for example, a lender, insurer, landlord, or employer, among others, to have a legally permissible purpose to obtain a report."

Here is the section of the law that applies:


Permissible Purposes of Consumer Reports – Section 604; 15 U.S.C. 1681b Investigative Consumer Reports – Section 606; 15 U.S.C. 1681d

Legally Permissible Purposes. The FCRA allows a consumer reporting agency to furnish a consumer report for the following circumstances and no other:

  1. In response to a court order or Federal Grand Jury subpoena.
  2. In accordance with the written instructions of the consumer.
  3. To a person, including a financial institution, that the agency has reason to believe intends to use the report as information for any of the following reasons:
  1. In connection with a credit transaction involving the consumer (includes extending, reviewing, and collecting credit);
  2. For employment purposes;8
  3. In connection with the underwriting of insurance involving the consumer;
  4. In connection with a determination of the consumer’s eligibility for a license or other benefit granted by a governmental instrumentality that is required by law to consider an applicant’s financial responsibility;
  5. As a potential investor or servicer, or current insurer, in connection with a valuation of, or an assessment of the credit or prepayment risks associated with, an existing credit obligation;
  6. Otherwise has a legitimate business need for the information:
  1. In connection with a business transaction that the consumer initiates; or
  2. To review an account to determine whether the consumer continues to meet the terms of the account.
  3. In response to a request by the head of a State or local child support enforcement agency (or authorized appointee) if the person certifies various information to the consumer reporting agency regarding the need to obtain the report. (Generally, this particular purpose does not impact a person, such as a financial institution, that is not a consumer reporting agency.)

In the process of selling a note you will be asked to sign a Credit Authorization form. This form asks that you provide the name and social security number of the note payor. At times note sellers think that there is something wrong about providing this information, and/or they didn't bother to get it before they provided seller financing. While providing seller financing can be a great idea, proper due diligence is essential. This includes checking credit histories before taking back a note, and that requires you to obtain the social security number. If you didn't check the credit history in advance, social security numbers are typically shown on a contract of sale.

Each year the IRS requires you to provide a Form 1098-Mortgage Interest Statement to each payor making $600 or more in interest payments to you, on a single mortgage. You must provide a copy to the IRS as well. You need the payor's social security number to do so.

Checking the payor's credit history is required by note buyers. If a note holder is considering to sell a note and obtains a quote, it may be provided without a credit history or with limited credit information. But the price given is conditional on an acceptable credit history. By providing quality credit information upfront, the prices you get for your notes will likely be upheld after further due diligence. After a quote is accepted, the note buyer will verify the note payor's credit as part of the final due diligence.

Sources of Credit Information

What are some ways to get a credit score or a copy of a credit history? Federal law allows you to get a free copy of your credit report every 12 months, from each of the three major credit bureaus. The actual source to get these free reports is www.annual creditreport.com. So if you offer seller financing, here is a resource the prospective buyer of your property or business can use to get a copy of their credit history for you.

Credit scores are widely used to help determine creditworthiness. The free annual credit reports do not include credit scores. You may consider these options:

  • CreditKarma.com Offers free credit scores, reports and insights plus related tools. Also, free credit monitoring. You get access to your credit scores and reports from TransUnion and Equifax, with weekly updates.
  • FreeCreditReport.com Freecreditreport.com is a part of Experian.

    Your Experian credit report and FICO score are completely free. Your free score and credit report are updated every 30 days on sign in. Additional tools and pertinent information are also provided, including sources of various types of loans.

    By choosing the option to print your report, you don't actually need to print it. But this view will provide you with more information than the basic report you see originally. This view also provides commentary about what is helping and hurting your score.

    There is also a link to check all three credit scores. Clicking this link takes you to a paid option for 3-bureau credit monitoring.

  • Nav.com Free business credit scores along with educational content. Plus a market place with over 100 business credit cards and loan sources. If you sell your business and carry a business note, consider suggesting this resource to the buyer of your business.

So these are additional resources your prospective buyers can use, to get a copy of their credit information for you. And your prospects may already have recent credit reports and credit scores from other dealings, that they can share with you. As you review the choices in this article, keep in mind how you might check your own credit information versus that of someone else.

FICO vs. VantageScore

Fair, Isaac and Company developed the FICO score in 1989. It is used by most lenders and creditors. VantageScore is a consumer credit score developed as a joint venture by Equifax, Experian and TransUnion. As of VantageScore3.0 both methods use scores in the range of 300 - 850. FICO also provides industry specific scores out side the base range.

In an article posted April 6, 2018 in WalletHub, it shows that 80% of the 25 largest lenders use VantageScore and 90% of the 100 largest lenders use FICO. But all major lenders also use their own scoring models. These usually produce different results than you might see from free services available to comsumers.

A score provided by a free service is likely to be a VantageScore and not a FICO score. CreditKarma for example, provides a VantageScore. The current version is Vantage 4.0. But a recent check of my own score used Vantage 3.0 both from Transunion and Equifax. Just as both versions of Vantage are currently in use, versions 8 and 9 of FICO are used by different lenders. Vantage 4.0 is the only scoring model that considers trended data. That is, it looks at your borrowing and payment trends over the past couple years.

With the passage of time more options have developed. If you or your prospective buyers carry certain credit cards, FICO scores are available for free through their websites. At Discover, you can obtain a FICO score for free even if you don't carry their card. That score is available at Discover.

According to HSH Associates, Financial Publishers, VantageScore describes the two systems as having these different ranges:

FICO Scores:

  • Exceptional: 800 and up
  • Very good: 740 to 799
  • Good: 670 to 739
  • Fair: 580 to 669
  • Poor: 500 to 579

VantageScores:

  • Excellent: 750 and higher
  • Good: 700 to 749
  • Fair: 650 to 699
  • Poor: 550 to 649
  • Very poor: 500 to 549

Both the FICO Score and the VantageScore use six categories of information about individuals to compute their scores. Using HELOCs as an example, my article 34 Questions About Home Equity Lines Of Credit (HELOCs) discusses these six categories. This link will take you directly to the section of the article that applies

Paid Options

If you want to get your true FICO score you might have to pay for it. At MyFICO.com, you can purchase your FICO score from any of the three credit bureaus, for $19.95 per FICO score report. A 3-bureau credit report is available for $59.85. To reach these options you need to select "Pricing" and below that select "One-Time Reports." Otherwise the Home page offers monthly subscription plans with additional benefits.

For your current and prospective debtors, you may prefer to obtain their credit report on your own. That's what a bank would do. You can contact the three major credit bureaus at these links:

Creditchecktotal.com

Perhaps you've heard of creditchecktotal.com. As part of a trial offer you can get your 3 credit reports and FICO scores for $1.00. This begins your 7 day trial membership in Experian CreditCheck Total. You can cancel any time within 7 days without charge. Otherwise you will be billed $29.99 for each month that you continue your membership.

Membership includes daily identity theft monitoring, dedicated fraud resolution support and up to $1 million identity theft insurance. Check the website for more information.

CoreLogic Credco

If you are serious about obtaining 3-bureau merged credit reports of others, go to credco.com. You will fill out a form and an associate will contact you about their programs.

Take Action

According to an inc.com article, up to 75% of credit reports contain incorrect information. Credit scores obtained about the same time from different sources can vary widely. The more complete information you can develop about prospective buyers, the better decisions you can make. So take a little extra time to understand their credit history. The better decisions you make, the more likely you can sell a note when you want to, and get a better price for it. The more complete picture you can give me about the quality of your note, the more satisfactory solutions I can provide you to purchase all or part of your notes. When you complete one of my worksheets, I encourage you to add your comments to help explain the data you have provided, as well as any mitigating factors that you feel improve the quality of your notes.

8 Use of consumer reports for employment purposes requires specific advanced authorization, disclosure notices, and, if applicable, adverse action notices. These issues are contained in Module 3 of the examination procedures. Back to text

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