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When you're looking for a new job, your credit report may be the last thing on your mind. But before hiring you, potential employers may ask you to authorize a background screening as part of the application process. That screening could include checking your credit report.
Employers are most likely to check credit when the job you're applying for requires you to manage finances or handle sensitive data. But some cities and states limit whether, and to what extent, employers can use credit history in hiring decisions.
If you're feeling uneasy about the information employers might see, read on to understand whether you should expect a credit check—and how companies use what they learn.
Why Employers Check Credit Reports
Your credit report is a chronicle of your financial history, including the loan and credit card accounts you've applied for and opened, how long you've had them, and whether you've made payments on time. Financial institutions use this information to determine whether you can be trusted to repay loans or pay credit card bills as required.
It's most common to undergo a credit check as part of a job application if you're an aspiring manager or you'll deal with finances or confidential information in the role. You could also be asked to undergo a credit check if you're being considered for a promotion.
Employers use credit checks to gauge your trustworthiness and aptitude at managing money. A hiring committee may think employees who can skillfully oversee their own finances would do the same for high-stakes projects at work.
Companies that run credit checks see a limited version of your credit report. It includes personal information to verify your identity (with the exception of your birth date); your Social Security number; and loan and credit card accounts, including payment history and whether any accounts are in collections. It won't include specific account numbers or information about your spouse.
Can an Employer See Your Credit Score?
Employers who run credit checks cannot see your credit score. The report they receive includes information that contributes to your score, like payment history, and frequent late payments could be a cause for concern. But the three-digit credit number is not included.
The screening itself also won't make an impact on your credit score. That's because a credit check is considered a soft inquiry. Credit reporting agencies differentiate this type of query from a hard inquiry, which occurs when you apply for a loan or credit card. A soft inquiry doesn't involve a request for credit, so it's not a potential red flag for lenders the way several hard inquiries in a short time could be.
Can You Be Rejected for a Job Because of Your Credit?
In most states, it is possible for an employer to decline to hire you due to your credit history. It can be the sole reason for the rejection, or a single contributing factor among many.
Several states limit employers' ability to use credit checks when making hiring decisions, however. These include California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington. Delaware restricts public employers only from incorporating credit checks into employment decisions. Some cities have passed laws too: New York City and Chicago, for instance, prohibit employer credit checks. For more information on your state's laws, visit the website for its office of labor.
If your employer does check your credit history, it will likely take many other elements of your application under consideration too. It will evaluate factors like the relevance of your previous experience, your educational background and references from within and outside the company.
Your Rights When Employers Check Your Credit
Employers must comply with regulations in the Fair Credit Reporting Act when conducting an employment background screening, which can include checking your credit. They must do the following:
- Explain to you in writing that the information they gather may be used to make hiring decisions. This explanation should be in a separate document than an employment application so that the process is as clear as possible.
- Receive written permission from you to conduct the screening. This may be in the same document as the one notifying you of the screening. Check if you're being asked to authorize a one-time credit check or if the company could repeat checks in the future.
- Notify you before you've been rejected for a job on the basis of your credit. The company must include a copy of the credit report they used to make the call and a summary of your rights under the Fair Credit Reporting Act.
- Give you time to respond to the employer's decision and to dispute any errors you find in the report.
- Provide an oral or written explanation of the employer's final decision to reject you for a job, known as an adverse action notice. The notice should include:
- Information about the consumer reporting company that provided the employer with your credit report.
- Confirmation that you have the right to dispute information in the report and get your own free copy within 60 days.
- Securely get rid of your credit report and any information collected from it.
How to Prepare for a Credit Check
To avoid a surprise when an employer checks your credit, get familiar with your financial history beforehand by checking your credit report for free from Experian. You're also entitled to one free report per year from each of the three credit reporting agencies—Equifax, Experian and TransUnion—which you can access on AnnualCreditReport.com.
Make sure all the information is correct, including identifying information like your name and address, the accounts listed, and your payment history. If you find an error, dispute it using each credit bureau's internal procedure.
Some employment screening companies let you request your own copy of the modified credit report an employer would see, generally once you've authorized an employer to conduct it. This can help you double-check that all the information is accurate.
If you were denied a job as a result of your credit, however, you'll always have the chance to view for free the report the company used. And checking your primary credit report will give you the opportunity to address any inaccuracies that would also be on the employer's version.
The Bottom Line
If you're likely to be subject to a credit check when applying for a job or promotion, knowledge is power. Look at your credit report as soon as you begin a job search so that you can correct any mistakes, or improve your credit using time-tested strategies like paying all bills on time. That will help ensure that poor credit doesn't get in the way of your dream job.
But even if credit remains a concern during the job hunt, know your federal and state rights so that you can advocate for yourself throughout the process. You're entitled to fair legal treatment regardless of your credit history.