Can You Sue for an Unauthorized Credit Inquiry?

Credit inquiries are an essential part of the credit system, and provide a mechanism for lenders or other businesses to access the information kept in consumer credit files during their deliberations about a specific consumer’s creditworthiness. However, not all inquiries that are performed are legitimate, and not all of them are authorized either. Illegitimate or unauthorized credit inquiries can have a significant negative effect on your credit report, and as a result, your credit score. 

We’re going to dig into what exactly an unauthorized credit inquiry is, and how it can impact your credit score. We’ll also look at the legal rights and protections that you have been granted by the Fair Credit Recording Act, how you can find a resolution if you suspect an unauthorized inquiry has been done, as well as if you can sue for it or not.

What is an Unauthorized Credit Inquiry?

A credit inquiry, also known as a credit pull or a credit check, is a request made by a lender, creditor, or other business to review your credit report. There are two types of credit inquiries, hard inquiries, and soft inquiries. A hard inquiry occurs when you are applying for a loan or credit, and the lender needs to evaluate your creditworthiness. 

A soft inquiry is less impactful, and can sometimes be done for background checks, loan or card pre-approvals, or account reviews. Soft credit inquiries do not affect your credit score, while hard inquiries can affect your score.

An unauthorized credit inquiry occurs when a financial institution or another party conducts a hard inquiry without your knowledge or consent. Sometimes this happens as a mistake, but it can also happen as a result of fraud or identity theft. Unauthorized credit inquiries can hurt your report, and if you haven’t been applying for additional accounts they can be indicative of identity theft. 

The Impact of Unauthorized Credit Inquiries on Your Credit Score

While credit inquiries are a core function of the credit industry, and serve to provide lenders with information about your credit history and financial habits, they can also be highly detrimental when done without authorization. Here are some ways that unauthorized credit checks can impact your credit and financial health:

• Credit Score Impact

Hard credit inquiries, which only happen when you apply for new credit or lending products, can temporarily lower your credit score by a few points, and multiple hard inquiries in a short period can send your score even lower. This is because many popular FICO scoring models view multiple hard inquiries in a short period to be a sign of financial distress, making that borrower much higher risk than otherwise. 

• Reduced Credit Opportunities

A lower credit score can make it more challenging to obtain new lines of credit or obtain favorable terms for lending products since you’ll likely be seen as a high-risk borrower. This can also lead to higher interest rates for credit cards and loans or even outright denial of credit applications. In some cases of substantial score changes, creditors may modify existing agreements by lowering credit limits or raising interest rates. 

• Sign of Fraud of Identity Theft

Unauthorized credit inquiries can be an early warning sign of fraud or identity theft. Criminals may use your personal information to open new accounts, apply for credit or loans in your name, and potentially cause long-term damage to your credit score and financial future if left unaddressed. 

Since unauthorized credit inquiries can have such a significant impact on your credit health and overall financial well-being, it’s crucial to be proactive in identifying and addressing them as soon as they are discovered. This is one way in which apps like CreditKarma can be invaluable since they can send you a notification as soon as a new inquiry hits your credit report. 

Legal Rights and Protections Against Unauthorized Credit Inquiries

Both the Fair Credit Reporting Act and the Consumer Financial Protection Bureau offer consumers a range of legal rights and protections against unauthorized credit inquiries. Take a look.

Fair Credit Reporting Act (FCRA)

The FCRA is a federal law enacted in 1970 that creates guidelines and regulations covering the collection, dissemination, and use of consumer credit information. Some of the key rights given to consumers in the FCRA include:

• Right to Access Your Credit Report

Consumers are entitled to one free copy of their credit report from each of the three bureaus, every 12 months. 

• Right to Dispute Inaccurate Information

If you find an error, inaccuracy, or unauthorized credit inquiry, you have the right to dispute it with the credit bureau that provided the report. The bureau must investigate your dispute within 30 days and remove the inquiry if it is found to be unauthorized.

• Right to Be Notified of Adverse Actions

If someone makes an adverse action against you, like denying you a credit card or a loan, based on information in your credit report, they must provide you with a notice that includes the name and contact information for the credit bureau that supplied the information.

Consumer Financial Protection Bureau (CFPB)

The CFPB is the federal agency tasked with consumer protection in the financial sector. It enforces the FCRA and provides additional resources for consumers who believe unauthorized credit inquiries are being run. If you believe that your rights under the FCRA have been violated, you can file a complaint with the CFPB.

Can You Sue for an Unauthorized Credit Inquiry?

If you’ve taken the time to go through all of the other channels to resolve your credit report inaccuracies, and the credit bureau still hasn’t resolved them, you might be wondering if there’s anything else you can do. The good news is that the FCRA guarantees you the right to sue for unauthorized credit inquiries as well as the damages they have caused.

Legal Grounds for a Lawsuit

Under the FCRA, you have the right to sue a party that has violated your rights under the act. If a financial institution or other entity conducted an unauthorized hard inquiry on your credit report, you likely have grounds for a lawsuit. Before initiating a lawsuit, however, it’s essential to gather evidence for your claim. 

This may include documentation of your dispute with the credit agencies, any correspondence with the liable party, and any records of adverse actions taken as a result of the unauthorized inquiry.

Potential Outcomes

If you and your attorney decide that you have a good case for an unauthorized credit inquiry lawsuit, there are several possible outcomes for the suit, and you may receive anywhere between none of them, and all of them, depending on the verdict of the judge or jury. 

• Statutory Damages

These are damages ranging from $100 to $1,000 per violation.

• Actual Damages

These are damages represented by real-world harm, like denied credit or loans, or increased rates.

• Punitive Damages

Some cases are serious enough that there may be punitive damages awarded to punish the defendant further.

• Attorney’s Fees & Court Costs

In many cases, when you win a lawsuit, the losing side must pay the legal fees and court costs. 

Trust Fair Credit With Your Unauthorized Credit Inquiry Lawsuit

If you believe that you have a solid case for unauthorized credit inquiries, you may be entitled to collect compensation for the damages you suffered as a result. To discuss the specifics of your case in a confidential environment with an experienced legal professional and expert in FCRA cases, reach out to Fair Credit today.