Running Credit Checks Under the Fair Credit Reporting Act - What You Need to Know

Running Credit Checks Under the Fair Credit Reporting Act - What You Need to Know

Material suppliers for the construction industry want to avoid bad debt when extending an advance to customers. Credit checks provide insight into a potential customer’s financial behavior. Material suppliers can receive these reports from several consumer reporting agencies and bureaus. Consumer finance laws regulate reporting agencies to ensure fairness and accuracy of reporting. Here’s what construction supply companies need to know about fair credit.

Credit Checks

Construction suppliers should obtain the proper reports before allowing financing options. A credit report indicates the likelihood that the customer will pay their bills. Credits scores are particularly vital when signing significant purchase agreements or long-term contracts. Material providers can’t afford to lose money by signing no-pay customers. You may choose not to do business with companies with scores below 500. For customers with a below-average rating (580 to 680), you may consider leveraging more favorable payment terms such as a more substantial upfront deposit.

Fair Credit Reporting Act

Material suppliers need to know the rules and regulations for when and how to run checks on customers. Companies should only obtain credit reports for legitimate business purposes. The federal Fair Credit Reporting Act (FCRA) limits reporting to specific activities such as extending credit or entering a long-term financial contract. FCRA promotes accuracy, fairness, and privacy from consumer reporting agencies. 

The FCRA outlines specific disclosure requirements for companies who deny an application based on a credit report. You are legally required to tell a customer when your refusal to extend credit is based on a report. You also must supply the name, address, and phone number of the credit reporting agency.

Even with credit reports, there is still a chance you’ll run into no-pay customers. Give The Kaighn Company a call if you need help collecting bad debt. Call 908-319-5155 or email cmdevito@kaighnco.com.