Published in: Credit Cards | Nov. 26, 2018
Everything You Need to Know About Employer Credit Checks
By: Christy Bieber
Many employers want to run credit checks on employees -- but is this legal and what can they do with the info they find? Find out everything you need to know here.
Image source: Getty Images.
If you've been under contention for a job, chances are good an employer has asked you to submit to a credit check. As many as 72% of employers conduct background checks on all new hires, and close to 3 in 10 employers check candidates' credit, according to a recent Career Builder survey.
Whether your credit is stellar or you have some black marks on your credit report, it's natural to be nervous when employers want access to this important financial information.
The good news is, you have certain rights and there are also limits on what employers can use the information for -- so make sure you understand the rules for employer credit checks before submitting to one.
Why do employers check credit?
Employers check credit for lots of reasons. One big one is they want to see if you can handle money responsibly. This explains why it's more likely you'll be subject to a credit check if you work in an industry where you have to handle the company's cash.
Employers also want to see if you generally keep agreements with creditors by paying them back on time -- otherwise this could create red flags that you won't fulfill your obligations as an employee.
Some employers also may believe that when you're in a lot of financial trouble because you owe a fortune, it's more likely you'll engage in unethical behaviors such as committing fraud.
While the actual predictive value of checking your credit is up for debate, it's clear a substantial number of employers believe the information is worth considering when deciding whether to make a job offer.
What are your rights when it comes to an employer credit check?
While employers may want to check your credit, that doesn't always mean they'll be able to do so.
There are 10 states -- plus Washington, D.C. -- that either prevent employers from looking at your credit report altogether or that restrict the circumstances under which employers can use information from reports to make job-related decisions.
If you live in a state that permits employer credit checks, the federal Fair Credit Reporting Act still provides some protection. For example, the Fair Credit Reporting Act requires employers obtain your written consent before checking your credit. If an employer decides to reject you from a job on the basis of the information contained in your credit report, they also have to let you know why -- and give you a copy of the report.
Employers not only need to obtain written consent, but they need to do so in a separate document -- not as part of a general pre-employment application. While you may be passed over for the job if you refuse to give this consent, being alerted in advance gives you the chance to explain any adverse info employers are likely to see in the report.
What do employers see when they check your credit?
When employers check your credit, they don't get the same report that lenders do. They receive a modified version that leaves off information that could potentially violate equal employment laws. This means employers don't see things such as your marital status or birth year.
Employers also don't see account numbers, or your credit score when they pull your report. They do see your Social Security number, your address, information from public records, and details about both your employment history and your borrowing history.
When an employer pulls your credit report, it's considered a soft inquiry so the record of their credit pull won't stay on your record for two years the way an inquiry does when a lender pulls your credit after you apply for a loan.
Can employers do anything they want with the info from a credit check?
While employers have broad leeway to use the information in your credit report, there are some important limitations. Namely, employers cannot discriminate against you solely because of a bankruptcy filing.
Federal law prohibits bankruptcy discrimination, so employers can neither terminate you nor refuse to hire you simply because of a bankruptcy filing or because you failed to repay a debt discharged in bankruptcy.
Be prepared for an employer credit check
While you may feel you have to submit to a credit check request if an employer asks, the fact you must sign a written release first gives you ample opportunity to explain away problems on your credit report that could affect your employment prospects. Be prepared with a good answer if your credit isn't perfect so you can make sure adverse information on your report doesn't cost you your dream job.
Don't pay credit card interest until 2021
The Ascent just released a free credit card guide that could help you pay off credit card debt once and for all. Inside, you'll uncover a simple debt-cutting strategy that could save you $1,863 in interest charges paying off $10,000 of debt. Best yet, you can get started in just three minutes!