Job application

Employer Credit Checks – How To Prepare For Your Next Job Application


BBusinesses buy credit reports for many different reasons. One of the most controversial uses of credit reports is when employers perform credit checks to assess job applicants.

Despite the controversy, many employers include credit checks in their background check processes. According to the Professional Background Screening Association, 38% of employers said they check credit reports at least a few job applicants in 2020.

For jobs in the financial industry, potential employers are more likely to review your credit reports as part of the application. And if the position you’re looking for requires a security clearance, there’s a good chance the background check will also include a credit assessment.

Read on for a closer look at employer credit checks. We’ll cover what employers can look for when reviewing credit reports and why this information is important in the first place.

Why Do Employers Check Credit Reports?

Credit reports are tools others can use to gather information and predict risk. In the world of credit, a bank or credit card issuer can look at your credit history to see if you are likely to pay off your debts on time. Insurers use credit to determine your chances of making a claim (and then price your policy accordingly).

However, your credit reports do not contain details of your past work performance. So why would a potential employer be interested in your credit information?

Here’s why your credit history is important to employers. Job credit checks can help a business predict whether you’re likely to be a reliable and trustworthy worker.

Credit history checks can help a potential employer:

  • Verify the identity of job seekers.
  • Discover conflicting information and other red flags about job applications.
  • Find out how job applicants have handled personal finance issues in the past.

Credit reports can reveal whether someone is showing financial responsibility, which can translate into liability in other areas. They can also provide a warning if someone is in financial difficulty and therefore may be more prone to fraud or theft.

What do employers see when they check your credit reports?

When an employer checks your credit, they don’t see the same report a bank would see when you apply for a credit card or loan. Instead, an employer sees a revised version of your credit report. Depending on where the employer purchases the report, it may be from Equifax, TransUnion, or Experian.

Despite a popular credit myth, employers don’t check your credit scores when you apply for a job. The three major credit reporting companies do not include your credit scores in the credit reports used for job selection. For confidentiality reasons, reports should not contain your account numbers either. Finally, these amended reports may lack information that could violate Equal Employment Opportunity Commission (EEOC) regulations, such as:

  • Date of Birth
  • Marital status

On a related note, you might be happy to hear that employment credit checks are sweet inquiries. Therefore, they have no impact on your credit scores.

Your legal rights

The Fair Credit Reports Act (FCRA) sets the rules regarding the use of credit reports, including employer credit checks. According to the FCRA, an employer must take the following steps to use a credit report as part of a background check.

  1. Obtain your written permission to access your credit report.
  2. Provide you with a clear written notification that it will use credit information as a factor in hiring decisions.
  3. Warn you that he may reject your application based on your credit (before he actually decides not to hire you).
  4. Give yourself a reasonable time to respond and explain any errors or red flags on the credit report. If credit errors are present, the employer should give you time to dispute them with the appropriate credit reporting agency.
  5. Send you a final notice, called “adverse action letterExplaining why he decided not to hire you. Adverse action letters should contain details of the credit reporting agency that provided your credit report, their contact information, and your right to request a free copy of your credit report for the next 60 days.
  6. Dispose of each copy of the report securely.

Aside from federal law, state law can also affect whether or not your next job application requires a credit check. Several states restrict or limit the use of credit reports for job selection, including:

  • California
  • Colorado
  • Connecticut
  • Delaware (public employers only)
  • Hawaii
  • Illinois
  • Maryland
  • Nevada
  • Oregon
  • Vermont
  • Washington

Some cities like Chicago and New York also limit or prohibit employers from using credit checks in hiring decisions. You can check with your national labor agency to collect more information.

How to prepare your credit for a job application?

Knowing that an employer can check your credit during the hiring process gives you options. You can take smart credit approaches before you apply for a job to make the best impression possible. Here are some ideas to get you started.

  1. Check your credit reports. It is always wise to check your three credit reports before filling out a new application. You can download free copies of your Equifax, TransUnion, and Experian credit reports from AnnualCreditReport.com. Through the FCRA, you can request free reports from the credit bureaus once every 12 months.
  2. Review your credit reports for problems and errors. Once you have your three gears, you need to comb them through. The main issues you want to watch out for are fraud, errors, and negatives.
    1. If you find evidence of fraud or identity theft, consider filing a report at IdentityTheft.gov. You may also want freeze your credit reports, and maybe add fraud alerts for extra protection.
    2. You can litigation errors that you also find on your credit reports. Credit report errors could also damage your credit history and credit scores, although the latter are not relevant for job credit checks.
  3. Consider paying and settling your debts. If you have any outstanding debts, updating them should probably be your top priority. For the exceptional collection accounts, settling them before your job application could also be beneficial to you. If a credit check is part of a company’s hiring process, showing that you’ve fixed past credit issues could work in your favor. Pay off credit card debt can’t hurt you either. Even if the employer is not concerned with unpaid credit card debt, reducing your balances could improve your credit scores and save you money on interest.
  4. Monitor your credit reports. Finding a new job can take time. It’s important to monitor your credit reports throughout this process so that if any negative changes occur, you will be able to take action immediately. Tracking your credit also reveals whether your credit improvement actions are working or if you need to change your strategy.

When you have bad credit

Bad credit doesn’t necessarily kill your chances of landing a great new job. In fact, many employers do not check credit history. Even those who do might not examine the credit of every potential employee in every position. A credit check is also just one of many factors that could influence an employer’s hiring decisions.

If you have bad credit, consider writing a detailed explanation of your situation. Perhaps illness or job loss leads to inevitable payment delays. Or maybe you co-signed for a loved one and the decision came back to bite you. A written explanation gives you a chance to tell your side of the story.

Large businesses (especially in the financial world) may be more likely to review an applicant’s credit information. Meanwhile, a small business can skip this step. A small business may also be more willing to ignore past credit problems if you can show you’re working to turn things around.

Final result

The idea that bad credit can be a barrier to getting a job may seem unfair. But knowing that a pre-employment check is an option allows you to plan ahead and perhaps work your way out. You can make sure that your credit is in the best possible shape and, if necessary, find an explanation for any defaults in your credit history.

This article was written by Michelle Black and originally appeared on Credit Card Insider.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


Leave a Reply

Your email address will not be published.