Why do employers check your credit?
Employers check your credit during the screening process to learn more about you and how you manage your debts.
There are generally two things that employers look for on your credit report:
- Late payments: If there are late or missed payments on your credit report (or other negative items, such as foreclosures and repossessions), employers might assume that you’re irresponsible or you have trouble honoring your commitments.
- Excessive debt: If you’re in too much debt, it’s harder to get a job, particularly at financial institutions. Employers often worry that people who are deep in debt might be vulnerable to bribery.
Jobs that require credit checks
According to research by the Society for Human Resource Management, employers commonly conduct background credit checks for:
- Positions with financial responsibilities, such as banking or accounting roles
- Positions with access to confidential information, such as HR positions
- Positions with access to company property, such as information technology (IT) or administrative services roles
- Executive positions (e.g., CEOs)
However, that doesn’t mean you’re exempt if you’re applying for a different position. A 2018 study found that 16% of employers run credit checks on candidates for all roles.
What does an employer credit check show?
The three main credit bureaus (Equifax, Experian, and TransUnion) send prospective employers a shortened version of your credit report that includes:
- Identifying information like your name, address, previous addresses, and Social Security number
- The payment history on your credit report (including any negative items)
- The balances on your credit accounts
- Hard inquiries (credit applications you’ve made)
Your actual credit score isn’t included in this report, and employers can’t see it. The bureaus also remove information like your date of birth from your report before they show it to employers.
Does an employer credit check hurt your score?
No, employer credit checks don’t hurt your credit score. The checks that employers perform are called “soft inquiries,” and only “hard inquiries” (credit checks from potential lenders, like your bank) lower your score.
You’re the only person who can see soft inquiries on your credit report, which also means that potential employers can’t check which other jobs you’ve applied for.
Can an employer deny you a job because of bad credit?
Yes, employers can deny you a job if you have bad credit (in most states—see below). However, your prospective employer is legally obligated to tell you if the contents of your credit report influenced their decision to reject your application.
You’re also entitled to a free copy of your credit report from the bureau that provided the report within 60 days.
States that ban credit checks for employment
Several states have passed laws restricting when employers can pull your credit report.
For instance, in Colorado, employers are generally prohibited from checking your credit unless you’re applying to be a police officer or for a job at a financial institution.
The following 11 states either restrict or ban employment credit checks:
- California
- Colorado
- Connecticut
- Delaware
- Hawaii
- Illinois
- Maryland
- Nevada
- Oregon
- Vermont
- Washington
Cities like Chicago, New York City, and Philadelphia have also passed laws to limit employer credit checks.
Contact your state’s Department of Labor if you’re unsure if your prospective employer can run your credit in your area.
What are your legal rights as a job applicant?
Under the Fair Credit Reporting Act (FCRA), you have the following rights:
- Notification and permission: Your employer must get your permission to check your credit report. They also need to acknowledge that they’ve received your consent within three business days.
- Removal of old information: The credit bureaus must remove negative information from your credit report after seven years (10 years in the case of some bankruptcies).
- Bankruptcy doesn’t count: Legally, your employer can’t deny your job application because you’ve filed for bankruptcy. However, in practice, this restriction is fairly limited—if you’ve declared bankruptcy, your credit report almost certainly has other negative marks, such as late payments, which they can deny your application over.
- Equal credit requirements: Under the Civil Rights Act of 1964, employers cannot set different credit requirements for different applicants based on race, color, religion, sex, or disability. Report your employer to the Equal Employment Opportunity Commission (EEOC) if you suspect you were discriminated against during a credit check.
How to prepare for an employment credit check
If there are negative items on your credit report, take steps to fix them if you’re planning on applying for a job in the near future.
To do so, follow these steps:
- Dispute errors on your credit report: Visit AnnualCreditReport.com to get a free copy of your credit report from each of the credit bureaus. If you find any errors, file a dispute with the bureaus and your lender asking for the mistakes to be removed.
- Always pay your bills on time: If you have negative items (such as missed payments) damaging your payment history, make sure you’re using your credit responsibly so that you can start rebuilding it as soon as possible.
- Use less of your available credit: Employers see your account balances when they view your report, so don’t overspend on your credit cards. It’s best to keep your credit utilization (the percentage of your available credit that you’re using) below 10%, although anything below 30% is usually okay.
If you have negative items on your credit report, it might help to proactively explain the circumstance that led to them. For instance, if you fell behind on your bills because you lost your job or were hit with unexpected medical expenses, say that.
Fortunately, your credit is only one of many factors employers consider when deciding whether to hire you or not. Usually, a few minor negative items aren’t going to stop you from getting a job, particularly if you write a great resume.
Takeaway: Employers can check your credit in most states
- Employers can see a limited version of your credit report that shows your identifying information, payment history, debts owed, and any hard inquiries you’ve received.
- Your credit score doesn’t fall when prospective employers view your credit report because their credit checks only trigger soft inquiries.
- Some employers pull every applicant’s credit report regardless of the job they’re applying for. However, credit checks are especially common for jobs in the financial sector.
- You can be denied a job because you have bad credit in most states. However, 11 states, including California and Washington, have passed laws banning or restricting employment credit checks.
- To prepare for employment background checks, dispute errors on your credit report, pay your bills on time, and lower your credit card balances.
