Your credit score plays a major role in your power as a consumer. In a financial context, it can dictate the terms and interest rate you’re offered when you obtain new credit (loans, credit cards and so on), whether you can rent an apartment, or whether you can obtain utility service without a cash deposit. You even have a credit-based insurance score and although it’s not quite the same as your FICO® score, it influences your eligibility for car insurance and the rates you’ll pay.
Have you been asked to authorize a credit check as part of a job application? Did you hear that employers can check your credit?
Here’s the short answer: employers cannot check your credit score.
However, in most of the country it is legal for an employer to request a copy of your credit report.
So if employers can’t check your credit score…
Where Did the Employers-and-Credit-Score Myth Come From?
Here’s the thing: “credit score” and “credit report” aren’t the same. However, they’re oftentimes confused as such, and the terms used interchangeably.
A credit score is a number based on an algorithm that measures your credit risk at a point in time. It’s derived from information that is pulled from your credit report. A credit score is expressed as a three-digit number, and ranges from 300 to 850. The two most popular credit scoring models are FICO® and VantageScore®.
A credit report, on the other hand, is a record of your credit history and provides detailed information about your past and current credit accounts and debts, how often you apply for new credit (and to whom), and collections that have gone to a third party. It also shows public record information such as evictions, bankruptcies, foreclosures, liens, and judgments. The report also includes personal info such as your Social Security number, address, and in some cases, the names of your current and past employers.
Because “credit score” and “credit report” are sometimes confused, and employers in some states can request your credit report but not your score, a common misconception is that employers can check your credit score. They can’t.
For a full breakdown of the report vs. score distinction and everything else you might want to know about credit reports, check out our Guide to Your Annual Credit Report.
Why Would an Employer Want to Check My Credit?
Some employers look for stability and trustworthiness in an applicant’s credit report. In fact, according to a 2018 HR.com report sponsored by the National Association of Background Screeners (NABS), 31% of employers do a credit check on some candidates, and 16% check the credit report of all candidates.
Essentially, an employer wants to get a sense of the type of person you are, and they may believe that your credit history will give them some insight. They may be looking for a history of financial trouble, liens or judgments against you, evictions, criminal charges or convictions, or other derogatory marks. Indeed, none of these is guaranteed to be associated with someone who is not worthy of being hired. But if the data is present, the employer could decline to offer a job, or at least ask for an explanation of the circumstances.
What Exactly Can an Employer Check?
First, the employer must get your written consent before requesting your credit report.
“An employer can’t just pull a report without obtaining written authorization from the employee or potential employee first,” explains attorney Larry P. Smith of SmithMarco, P.C. “In addition, the authorization must be a stand-alone document with no other information or waivers. That is, they cannot have you sign something waiving rights while obtaining your authorization.”
Then, the employer receives a modified version of your credit report. It is not the same as the credit report a lender sees. And while it does include data about your loans and credit cards, it doesn’t show account numbers, your year of birth, references to your spouse, or any other data that violates equal employment laws.
At least 11 states—California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington—have laws in place that prohibit employers from pulling credit reports or limit how the reports may be used in hiring decisions. New York City also has laws prohibiting most credit checks by employers.
An employer is not allowed to use certain information to make its decision, points out Kevin McCrann, president of Accurate Information Systems, LLC, a company that provides employee screening services. For example, any credit lines that are referred to as “medical” can’t be used to make hiring decisions.
Next, if the employer plans to reject you as a job candidate based on your credit report, you’re legally entitled to receive a warning. You’ll also receive a copy of the report along with a copy of the Federal Trade Commission’s notice “A Summary of Your Rights Under the Fair Credit Reporting Act,” which includes information on how to dispute errors on your report.
Finally, if the employer ultimately decides not to hire you based on what’s on your credit report, you’ll also receive an adverse action notice. That notice will include more details about your rights.
How to Prepare in Case an Employer Checks Your Credit
If you plan to apply for a job and expect to be asked to authorize a credit check, here are the steps you can take to make sure you’re credit is in the best shape it can be:
Order a credit report
Get a copy of your credit report ahead of time to head off surprises. You can receive a free copy every twelve months from each of the three major credit bureaus — Experian, Equifax, and Transunion — from AnnualCreditReport.com.
Fix any errors
Scan your report carefully for errors. This can be anything from payments that are incorrectly reported as late to collections that should’ve already aged off or personal information that is incorrect. Each credit bureau has a process for disputing an error. As many as one in five consumers have credit report errors, and some of these errors are serious enough to affect employment eligibility. The time to discover and correct errors is now, not after you have applied for a job.
Maintain practices to keep a good score
If you haven’t had good credit behavior in the past, start now. Pay bills on time, pay down your credit card balances, and only apply for credit that you really need. Use Credit Sesame’s free credit monitoring service to keep an eye out for errors or unexpected changes.
Besides your credit, you can also check your local county for your name in its criminal database, recommends Quinn. “See if any arrests or convictions appear. If they do, and this isn’t accurate, deal with the county authorities to clear the inaccuracy immediately before the employer starts to run reports.”
Even though an employer cannot see your credit score, know your rights to protect yourself from unauthorized invasion of your privacy. Make sure your credit history is the best it can be in case an employer wants to see it. You never know when a good job opportunity will present itself, and you should be ready.
If you’d like to ready about more credit myths check out a post by Dan Miller over at Points with a Crew!