Credit Repair

Can a Potential Employer Check Your Credit?

Seeking a job takes plenty of preparation: polishing your resume, finding promising openings, prepping for job interviews. But there’s one important part of your job application you might be forgetting to review: your credit report.

Many companies will conduct employment credit checks as part of their hiring processes. This means that the information on your credit report could be the difference between getting your dream job — or getting passed up.

Here’s what you need to know about when employers can check your credit, and how they might use the information when deciding whether to hire you.

Yes, employers can pull your credit report

A legally permissible reason to check credit is “to use the information for employment purpose.” This means employers can check your credit report and consider the information included on it in their hiring decision.

Most often, a potential employer will work with an agency that runs background checks on these job candidates. In fact, 96% of employers claimed that they use background screening and 31% have included credit or financial checks in the process, according to a survey from the National Association of Professional Background Screeners.

These background checks often include checking the candidate’s credit history, as well as their criminal record and other public records. Additionally, a potential employer must always obtain your written permission and authorization before it can perform a credit check.

However, an employer credit check is different

An employer credit check has some key differences from a lender credit check. For example, while laws allow credit checks for employment, this only allows companies to see your credit report or history. If they run a background check, this often includes pulling a copy of your credit report, but this copy will be a modified version called an employment report.

It won’t include, for example, your date of birth or credit scores, which are three-digit numbers that are often used to signify a consumer’s credit background and standing. So if you’re worried about whether an employer can see your credit scores, don’t worry — they can’t.

The employment report will include several other details about you, however:

  • Your credit accounts and payment history
  • Identification and address information
  • Employment information, including past work history
  • Public record details, including bankruptcies or liens

 

Lastly, this type of credit check is considered a “soft” credit check since you’re not incurring it to apply for credit. It won’t place a hard credit inquiry that will be listed on your report, so it can’t affect your credit score.

How employers view your credit report

Not every job application will include a credit check, as these details will be more relevant for some positions than others.

Your credit history is likely to be important, however, if you’re seeking a position in which you’ll be overseeing other employees, dealing with financial transactions or managing company cash and accounts. However, some employers will have a policy of running background checks on all employees, no matter their role.

Employers will likely use your credit report and other background check information to verify the details you provided on your job application, such as your previous employment and experience. They also might consider your credit accounts — generally, a positive (or at least not adverse) credit history is taken as a sign of financial and personal stability, according to Glassdoor.

Your credit report rights as a job applicant

Job applicants can reasonably expect to have a background or credit check run as part of the process of seeking employment. If you know your consumer and credit reporting rights, however, you can make sure you’re treated fairly and legally by potential employers.

Here are the rights you have as a job applicant when it comes to credit checks.

You must live in a state where employer credit checks are legal

Federal laws do allow employers to check your credit report and use it for hiring and employment considerations. But you might also want to check out local laws about employment credit checks.

Currently, there are ten states that have laws limiting whether, and how, employers can use credit reports in their employment decisions, according to a report from Seyfarth Shaw LLP’s Employment Law Lookout:

  • California
  • Colorado
  • Connecticut
  • Hawaii
  • Illinois
  • Maryland
  • Nevada
  • Oregon
  • Vermont
  • Washington

 

In addition to state laws, cities such as Chicago, New York City, Philadelphia, and Washington, D.C., have also passed legislation that limits how credit checks may be used by employers. New York City, for example, prohibits employers from checking your credit, asking about your credit history or payments, or rejecting you because of your credit.

If you live in any of these places, look into the specific employment and credit rules that might grant you additional rights and protections.

You must be notified and give written permission before a credit check

Employers who are using a credit report are required to notify you, in writing, that they are checking your credit and might use this information for hiring or employment decisions, according to the Federal Trade Commission. This notice has to be given in writing, and as a standalone document — not hidden in the fine print of an application.

The employer must also get your written permission to run an employee background check or access your credit report. Make sure you review this carefully, so you know if this is a one-time check or if the employer is asking for ongoing authorization to check your credit while employed with them.

You must receive advance notice of adverse action

Should an employer pull your credit report and see something that gives them pause, they can’t immediately deny you employment because of it. If they wish to reject you based on information on your credit report, they have to give you advanced notice of their intentions to do so.

Specifically, they will have to give you a full copy of the credit report they have and are using for these decisions. You will then have a few days to review the report and reach out to discuss the issues the potential employer found. This gives you a chance to catch any potential mistakes or errors or provide an explanation for any negative details on your credit report.

If the company moves forward with the adverse action such as rejecting your employment application, they must tell you that your credit report was the reason for its decision. It must also provide the name and phone number of the company that provided the consumer report, so you can reach out to that company to dispute the accuracy of the report and correct any errors.

Your credit information can’t be used in a discriminatory way

You should also watch for any potential signs of unlawful discrimination against you.

Employers are required to hold all applicants to the same standard, regardless of “race, national origin, color, sex, religion, disability, genetic information (including family medical history), or age (40 or older),” according to the Equal Employment Opportunity Commission.

If your negative credit history is the result of a disability, for example, this could be a mitigating factor that the employer should consider when using your credit report to inform their hiring decisions.

Employment credit checks: Another reason to build credit

The fact that your credit can affect your hire-ability makes it even more important to prioritize building and maintaining good credit. In fact, job seekers might want to give their credit reports the same attention that they would a resume or other important hiring documents.

Here are some ways you can build credit to make the best possible impression on future employers:

  • Check your credit report. You have a right to view your credit reports for free once every 12 months. You can also get free access to your credit file if you’re unemployed and planning to seek employment, or if you had an adverse action taken against you by a potential employer based on your credit report. Review your report, including all account and payment details, to ensure that the information therein is accurate and error-free.
  • Dispute credit report errors. If you find any erroneous information on your credit report, you have the right to dispute it. The credit reporting agency is then required to verify the disputed information and correct it if a mistake has been made.
  • Pay your bills on time. A history of consistent, on-time payments on your credit report will demonstrate good personal management and responsibility. It could also be wise to limit borrowing to keep debt balances low and payments affordable.
  • Be ready to explain your credit report. If your credit file does contain negative information, be prepared to discuss this with potential employers and providing details of mitigating circumstances. A hiring manager might view an account delinquency differently if it was caused by a hardship such as a health emergency, for example, rather than overspending or poor money management.

 

For many Americans, credit and payment history are considered as employers evaluate them to be hired, promoted, or kept on. This is proof of the important role your credit report can play in your life, affecting your ability to advance your career and qualify for higher-paying jobs.

By building credit and knowing your rights as a job applicant, you can put yourself in the best position to qualify for you next job offer.

 

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