Credit Sesame discusses whether employers check your credit score.
Actually, employers do not look at your credit score — that’s a myth believed by many. But in most states, employers are allowed to pull a version of your credit report, and you may wish to prepare for that possibility when you apply for work.
How likely are employers to check your credit?
According to the Professional Background Screening Association, 94% of employers perform background checks on job candidates. Whether those screenings include credit checks depends on the position for which they’re hiring. (Only 16% of employers say they check everyone’s credit.) Jobs involving money and finances, high degrees of responsibility or the potential for fraud are more likely to require credit checks.
However, these ten states — California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington — have laws that prohibit employers from pulling credit reports or restrict the use of credit report in hiring decisions.
In addition, at least 20 other states are working on potential limitations for using credit data in hiring decisions. That’s because many believe involving credit reporting in hiring decisions can lead to a vicious cycle — making it harder for people with bad credit to find work, which in turn causes difficulty paying bills on time, and so on. So check your state’s rules about employment-related credit checks because they may change in the next year.
Why do employers check your credit?
A 2018 report from HR.com states that 86% of the employers that perform background checks say they do it to protect their employees and customers. Many hiring managers believe that job applicants’ money management style reflects their organizational skills, ethics and ability to handle responsibility. Credit reports may also help hiring managers flag irregularities for further investigation — like a list of previous employers that doesn’t match an applicant’s resume. They also look for potential financial stress that could tempt employees into fraud or theft or cause health problems.
What credit report information can employers see?
While credit scores have not been shown to predict workplace success, credit reports provide information that many employers consider valuable, including:
- Confirmation of identity, names used and address history.
- Employment history.
- Legal filings like lawsuits, foreclosures, bankruptcies and tax liens.
- Outstanding balances of mortgages, auto financing, student loans, credit cards and other accounts.
- Collection accounts and chargeoffs.
- Payment history and “hard” inquiries.
- Insurance information.
Employment credit reports conceal a few things that regular reports show. They are:
- Inquiries from other employers, so they can’t see where else you’ve applied for work.
- Your date of birth, to avoid age discrimination.
- Your account numbers.
- Information about your spouse, also to prevent possible discrimination.
Credit checks by employers generate “soft” inquiries that won’t harm your credit score.
Your legal rights for employer credit checks
The Fair Credit Reporting Act doesn’t just apply to credit checks by lenders — it applies to employers, too. Under the Act, employers cannot pull your credit report without prior written permission from you. In addition, employers must alert you when they’re going to check your credit. Most of them only pull a credit report when they’re considering making you an offer, so getting a notice is probably good news.
If an employer plans to reject you based on information in your credit file, it has to give you a “pre-adverse action” notice so you have a few days to correct inaccuracies or explain credit problems. The notice must include a copy of your credit report, and a Federal Trade Commission notice entitled “A Summary of Your Rights Under the Fair Credit Reporting Act.”
If an employer makes a final decision not to hire you because of your credit report, it must then send you an “adverse action notice.” This notice tells you that you’re not getting the job and what your rights are at that point.
How to prepare for an employment credit check
Before you start a job hunt, check your credit report. You’re entitled to one free credit report from Experian, Equifax and TransUnion. You can request these reports at annualcreditreport.com, a site administered by the federal government. Or you can pull a free Credit Report Summary from Credit Sesame, which analyzes credit reporting information from TransUnion.
Chances are good that prospective employers won’t care about an isolated late payment here or there, but entries flagged as “serious derogatory” items may cause some concern. Those include bankruptcies, foreclosures, repossessions, tax liens, legal judgments, charge-offs and collections.
If you have some derogatory items that don’t belong on your report, file disputes with all three credit bureaus. It’s a fairly simple process and you can do it online on their web pages. Print out proof of your dispute and any correspondence admitting a reporting error in case the report isn’t fixed in time for your job search. Credit bureaus have 30 days in most cases to investigate your claim.
For serious items that won’t go away, prepare an explanation. It’s helpful if you can show that what happened wasn’t under your control (like a mass layoff, a medical problem, identity theft, divorce or other issue). If your credit problems were due to mismanagement or overspending, take responsibility and explain what steps you have taken to prevent future problems.
If an employer gives you notice that it’s going to check your credit, consider providing your explanation upfront. It makes you appear proactive and lets you control how they discover the skeletons in your financial closet.
Stay on top of your credit
If your job search is ongoing, you’ll want to check your credit reports periodically to make sure errors or identity thieves don’t ambush you. Or you can set and forget your employment credit report by enrolling in a free credit monitoring service like that offered by Credit Sesame.
You may also be interested in:
- Credit Explained: Credit, Credit Score, Credit Rating, Credit History and Credit Report
- Your Annual Credit Report: What is it and is it Accurate?
Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.