Employer Credit Checks: Who Does Them & Why

A credit check is a standard part of applying for new credit, such as a home loan or credit card.   It can also be part of the process for being approved for rental housing. What many people don’t know is that employers can run credit checks on applicants before extending a job offer. If your credit report isn’t up to par, it could cost you a job or promotion.

Positions that involve handling money are most likely to involve a credit check prior to hiring.   These would include jobs in the financial sector like banking, investment, or accounting. According to the National Association of Professional Background Screeners, 16% of employers run credit checks on all applicants. Credit checks are usually done prior to extending a job offer.  A credit check costs the company money and is less likely to happen prior to an interview.

Employers will check credit for a variety of reasons. The most common reason is to see if you can handle your finances responsibly. If your own finances are in good order, chances are good that you will also handle the company’s finances well. High credit usage or delinquent accounts could show financial distress. In an employer’s eyes, this may make you a riskier employee. Employers may view these things as signs that you are more likely to steal from or defraud the company.

Depending on the state you reside in, there may be restrictions on the use of credit checks in the hiring process. These restrictions often limit pre-employment credit checks to applicants in the financial sector. There are also localities (such as New York City) that ban the use of credit checks for employment, except in limited situations.

Regardless of where you live, there are certain parameters for credit checks that all employers must follow. The company must get your prior approval in writing to conduct a credit check. If you approve, the company sees a modified version of your credit report. For example, the report omits information that might violate equal employment regulations, such as your birth year. Your credit score is also not included. Credit checks conducted by employers are “soft” inquiries. This means that the check won’t affect your credit score. The Fair Credit Reporting Act (FCRA) is federal legislation that gives you certain rights as a consumer. The company must inform you if they have taken adverse action against you because of your credit report. If they have, you are entitled to a free copy of your credit report.

To prepare for future employer credit checks, obtain a copy of your credit report and review it. Check for inaccuracies as well as any delinquent or collection accounts that may negatively impact your score. If you’d like to review your credit report with a certified Financial Specialist, Apprisen offers a Credit Health Education Session.  During the session, a Financial Specialist reviews your credit report in detail. You will learn the factors that go into a credit score. We will also provide you with customized recommendations on how to build credit.