Why Does My Potential New Employer Need to Run a Credit Check for Employment?
While it may not seem relevant to your ability to do the job, some employers utilize credit checks as a way to gauge how responsible you are.
January 25, 2022
You wrote the perfect resume and cover letter, nailed the interview, and negotiated like a pro. Now, you are this close to receiving a job offer and are ready to celebrate. Wait a minute—your prospective employer just informed you they need to run a credit check before extending an offer. Why?
In many professions, a credit check for employment in the final stages of a job interview is common, but if you haven't experienced this before it can feel invasive. Let's take a closer look at why employers look at prospective employee credit reports, how their review affects your credit score and job opportunities and what you can do to make sure your credit is always ready to impress future employers.
Why do employers check candidate credit reports?
The big question you probably have right now is, why do employers check credit? How you manage your financial life may not seem like it relates to your job, but some employers take your financial health into account when determining if you’re a risky hire or not. You’re more likely to run into a pre-employment credit check if you’re applying for a job as a manager or where you’ll deal with finances or confidential information.
This is because some employers utilize credit checks as a way to gauge how responsible you are and if you are good at managing money. If you struggle to successfully oversee your own finances, some employers may worry you won’t be able to handle managing their money or important projects.
When applying for certain types of jobs, other background checks may be done:
Criminal background and sex offender registry check
International background check
Social media background check
Professional license background check
It’s worth noting that when an employer requests a copy of your credit report, it will count as a soft inquiry, so it won’t affect your credit score at all because you aren’t applying for new credit.
What employers look for in credit reports
So, what do employers look for in a credit check? When employers run credit checks, they can only see select information about your credit history. Your credit score won’t be visible to them, but they can see the information that contributes to your credit score, such as payment history and recent credit applications.
Generally, you have to give permission to a potential employer to run background checks, so don’t be afraid to inquire as to what types of personal information they’ll be reviewing if they request to do any sort of background checks.
Your rights regarding employer credit checks
In most states, employers are legally allowed to decline to hire you solely because of your credit history. However, in certain states, credit checks are not allowed by employers or there are limitations in place surrounding how they can use the information found in a credit report.
Researching the exact rules regarding employer credit checks in your state is a good way to know what you might expect and what your rights are. Certain cities also have consumer protections in place surrounding job credit checks. For example, in Chicago and New York City, employers are prohibited from doing an employer credit check on job candidates.
When it comes to credit checks for employment, employers have to comply with Fair Credit Reporting Act regulations when they conduct any employment background screenings such as credit checks. They must explain to you, in writing, that any information they gather may be used when making their hiring decision.
They also need to receive written permission from the candidate to conduct any screenings and must give you time to dispute any errors found in the report. If you are rejected for a job because of your credit history, the employer must give you either a written or oral explanation for their decision and give you time to respond to their decision.
Employers do not have the ability to view your actual credit score, but will gain access to personal information such as your:
Social Security number
Debts you've incurred
Payment history of debts
How to Prepare for a Credit Check
Before you start applying for jobs, it can be helpful to get familiar with your credit report. You can get a free credit report once a year from the three major credit reporting agencies (Equifax, Experian and TransUnion). One of the most important steps to take when reviewing your credit report is to look for any errors that can be fixed before you start applying for jobs so your credit report is as strong as possible. If you do find any errors on your report, you’ll need to dispute the error with the credit bureau that reported it.
Now is also a great time to start working toward improving your credit report. If possible, pay down any debts and avoid applying for new forms of credit. You may not be able to significantly improve your report before you finish your job search, but you may have a higher score and a better credit report in the future.
What to do if you’re denied a job because of your credit
In many states, you can be denied a job because of your credit history, but you have the right—at no charge to you—to view the report used by the company. Take this opportunity to check for inaccuracies on your report that you may need to correct. This is also a good time to look at areas of your credit report you can make efforts to improve. When your next big job opportunity comes around, your credit history won’t stand in the way.
Here are a few ways you can improve your credit score:
Correct any errors
Pay bills on time
Don’t use a large percentage of your available credit
Only apply for credit you need
Keep older credit accounts open when possible
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