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Credit Monitoring

Credit Checks for Employment



When looking for a new job or career, prepping for and landing an interview is essential.

There are a few red flags job applicants should look out for in any potential employer.

If a prospective employer asks to see your credit score or credit information as part of a job application, be wary about making any employment decisions — for a few reasons.

First, employment credit checks for employment screening purposes are illegal. Again it breaks several individual state laws to check any potential employees’ credit score.

Second, they’re probably confusing financial information such as a credit score with a credit report.

There’s a big difference between the two.

Why Do Employers Do Credit Checks?

Employers want to see prospective employee personal financial information such as a credit report for a number of reasons.

Stability, Organization, and Trustworthiness

They may be looking for stability, organization, and trustworthiness. Financial responsibility is important, just as integrity and positive job performance.

Checking your report may highlight poor character qualities or point out the possible likelihood of fraud and embezzlement from the company

They may want to reduce their legal liability for negligent job candidate hiring.

History of Financial Trouble

Potential employers may be looking for a history of financial trouble, bad credit, judgments against you, large student loan sums, evictions or criminal charges or convictions so they can get a sense of the type of person you are.

How You Deal with Money

Background credit checks are becoming less common.

When they are used, background checks are mostly to target specific jobs related to how an applicant deals with money, such as in a job handling large sums of cash or having access to confidential information, according to the Society for Human Resource Management, which found in a survey that poor credit history often isn’t a barrier to hiring.

What Companies Do Employee Credit Checks?

Traditionally, the biggest users of credit reports for hiring are companies in the defense, chemical, pharmaceutical, and financial services industries, according to Experian, one of the three main credit bureaus.

Such industries may hire workers in more sensitive positions, and employer credit checks are used to verify financial honesty and personal integrity.

Most companies don’t check credit reports in the early phases of the job hiring process, but wait until after the job interview or making a job offer.

According to the National Association of Professional Background Screeners, companies that do credit checks are most interested in credit history of two to seven years, according to the HR society.

Credit Score vs. Credit Report

If an employer is asking to check your credit score pre-employment, they’re probably confused. They can only do soft inquiries of your credit reports — with an applicant’s permission — and some states don’t allow credit checks at all.

Credit Score

A credit score is a number on a credit report that measures your credit risk at a point in time. Information from your credit report — payment history like late payments, credit utilization, length of credit history, new credit and credit mix — is put into an algorithm to measure credit risk.

A credit score is then computed using the three credit reporting bureaus Transunion, Equifax, and Experian, ranging from 300 to 850. FICO and VantageScore are the two most popular credit scoring models.

The number is used to help lenders set the terms and interest rate you’re offered on new credit, such as home and auto loans and credit cards. A credit score may also be used to determine if you can rent an apartment or sign up for a utility without having to pay a deposit.

Credit Report

Essentially a credit report is a record of your credit history.

It includes details about your past and current credit accounts and debts, when and where you’ve applied for new credit, and collections that have gone to a third party.

Public record information such as evictions, bankruptcies, foreclosures, liens and judgments are also included.

A credit report has your personal information such as your address, Social Security number, and may have the names of your employers.

Hopefully, you are already monitoring your credit with your free annual credit report mandated by the FCRA (Fair Credit Reporting Act) and know what the employer should expect when they view it.

Get a Free Copy of Your Credit Report

What Employers Can Check

The terms “credit score” and “credit report” are sometimes used interchangeably, creating confusion. Some employers may ask to see your credit report but not your credit score, giving the wrong impression that they can check both.

Federal law only allows a credit report to be checked by an employer, and only then under certain restrictions.

At least 11 states have more strict laws, prohibiting employers from pulling credit reports, or limiting how they can be used in hiring decisions. They are the following:

  1. California
  2. Colorado
  3. Connecticut
  4. Delaware
  5. Hawaii
  6. Illinois
  7. Maryland
  8. Nevada
  9. Oregon
  10. Vermont
  11. Washington

Some cities, such as New York City and Washington, D.C., also restrict them.

To start, federal law requires an employer to get an applicant’s written consent to request a credit report.

The authorization form must be a standalone document with no waivers, not part of another form that could require you to waive your rights while obtaining your authorization.

When getting your credit report, the employer only gets a modified version of it. It won’t be the same report a lender sees.

The modified report will show employers information about your loans and credit cards, but it won’t show identifying information such as account numbers, your year of birth, references to your spouse, or anything that violates equal employment laws.

Other Consumer Protections

If an employer pulls your credit report with your permission and the report plays any part in an adverse action, such as not getting the job, federal law requires the company to give you a copy of the report and a written description of your rights from the Federal Trade Commission.

Some information on a credit report can’t be used in hiring decisions, such as any credit lines referred to as “medical” information.

Employers are required to give an applicant the opportunity to clarify an issue on a credit report such as 3-5 business days, so if there is an issue, you may have time to explain.

To protect consumer privacy, access to a credit report by an employer isn’t shown on future credit reports, unless the applicant gets their own report directly from a credit agency. Also, lenders don’t see if employers check credit reports.

Before applying for a job where you may be asked to authorize a credit check, you can get your report in good shape by getting a copy of your credit report and fixing any errors.

If you’re planning on applying for jobs months from now, then start good credit habits such as paying bills on time, paying down credit balances, shooting for using no more than 30% of your available credit, and only applying for credit you really need.

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