There’s a reason why it’s called personal finance—because money matters are extremely personal. If you're facing a credit check for employment, understand that society—including some employers—sometimes makes character judgments based on how people manage their finances, which means your credit history can potentially affect your job search, for better or worse.
Case in point: A solid credit history is considered by many as an indicator of trustworthiness, self-discipline, and smart decision-making. On the flipside, money problems can be a major barrier to employment. Issues like delinquencies, foreclosures, bankruptcies, or maxed out credit lines might be reflective of poor judgement, erratic spending, or failure to live up to responsibilities.
A report by the National Association of Professional Background Screeners and HR.com found that 25% of HR professionals use credit or financial checks while hiring for some positions, while 6% check the credit of all applicants.
Of course, just because someone has a financial problem doesn’t mean they’re a bad person. But fair or not, if you’re on the job hunt, the information contained in your credit report may be a factor that can either help or hurt your employment chances.
What Is a Credit Check?
A credit check for employment is sometimes part of a job screening and involves an employer checking a condensed version of your credit history to see how you've dealt with debt. It includes your payment records, how much money you owe (think credit card debt, mortgages, student loans, etc.), and your available credit. It doesn't include your credit score.
Why Does an Employer Care About My Credit Score?
“What [employers are] looking at and where we typically see a credit check is if you’re applying for a job where you’re managing a company’s money,” says Rod Griffin, senior director of public education for Experian, one of the three major credit bureaus. “They want to be sure you’re managing your own well.”
It’s not only positions that involve financial or fiduciary responsibilities that might involve a credit check, though. There are other categories of employers that may want to review a candidate’s credit. For example, if you're applying to work at a business that deals with high-end items like jewelry, a clean credit report can show that you're financially stable and therefore less likely to steal merchandise.
Along those lines, if you’re vying for law enforcement positions, government agency positions, or any roles that grant you access to other people’s personal confidential information, you should expect a credit check for employment.
In some cases, the employer isn’t so much concerned with your finances as they are with sniffing out application fraud. “They’ll use the credit report as another way to verify that you are who you say you are,” says Griffin. This might be utilized more for jobs with high-risk operations, such as government jobs or work requiring security clearance.
If you're concerned about a background check, a less-than-stellar credit report might not disqualify you from getting the job, it could be a deciding factor. Think about it: Given the choice between two equally qualified candidates, one with pristine credit and one who’s overextended and in severe debt, which person do you think the employer will go with?
Know Your Rights
Before diving into employment and credit laws, let’s dispel a myth that’s been perpetuated online. When you hear things like “a bad credit score can prevent you from getting a job,” it’s actually not true. That’s because employers don’t pull your actual credit scores like a lender might, says Griffin. “[Employers] can only check a limited version of your credit report, and you have to give expressed written permission,” he says.
Now for the rules: The main document governing employment credit checks is the federal Fair Credit Reporting Act (FCRA). Here are the highlights:
- An employer must inform the applicant that the credit check might be used as part of the employment decision.
- The employer must get written permission to do the background/credit check.
- The candidate must be given a notice that includes a copy of the consumer report used to make the decision, and a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act.” They should also have an opportunity to review the report and explain or dispute any negative information.
Beyond the federal law, there are also currently a handful of states—including California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington—that place limits on when an employer is allowed to use a credit check for employment. Look into the law if you’re being asked about your credit history. The District of Columbia, and the cities of Chicago, New York City, and Philadelphia also have their own restrictions.
Some states allow credit checks for roles that grant access to confidential/proprietary information, security data, or trade secrets. In some other cases, permission is given if the job provides access to expense accounts or corporate cards.
For employers that do run credit checks, they cannot discriminate, meaning that if they’re going to run a check on you, then they should be running a check on all applicants for that role.
If an employee subsequently sues for discrimination, the onus is on the employer to demonstrate that no discrimination of occurred. Therefore, employers should have their policy documented, which includes their rationale for requiring a credit check, and then apply it consistently.
And don’t forget: By law, the employer must get your approval in writing before they run a credit check on you. That includes when you are a candidate, and also if you’re offered a promotion down the line that requires such a review.
Take Steps to Repair Your Credit
Depending on the industry or position you’re applying for, it’s possible that your financial history might become a factor in the hiring decision. Therefore, just as you’d update your resume and polish your social profiles before a job search, you should spend some time getting your financial house in order.
1. Start by requesting and reviewing your credit report, which you can do for free once per year from each of the three credit bureaus: Experian, Equifax, and TransUnion. In addition, see if any of your credit card companies, banks, or financial apps provides you with a free credit score tool for further insight (or you can pay a small fee to get your scores).
2. Comb through each credit report. Yes, it's exhausting, but it's necessary. You're looking for credit history errors including accounts that don't belong to you, duplicate accounts, fraud activity, and the like.
3. Dispute any errors. By doing this review prior to a hiring team’s credit check, you’ll at least have the chance to fix any errors that might be on your reports, and address potential red flags that would concern a future employer. According to Credit.com, 79% of consumers who disputed errors on their credit reports were successful in removing them.
4. Repair what you can. For instance, if you have a delinquency listed, you can call that creditor to see what can be done to remove that item from your report.
5. Get your finances in shape. Paying your bills on time and working to pay down your debt are the two best ways to maintain your credit health. If you're overwhelmed by numerous errors on your credit reports, you can work with a credit repair company to file formal disputes. For a fee, they will do the work on your behalf.
If you do have spotty credit, be upfront with a prospective employer, and then illustrate how you’re turning things around.
Get Noticed (in a Good Way)
If you’re worried about a credit check for employment slowing down your job search, don’t panic. There are ways you can grab the attention of hiring managers based on your strengths alone. Could you use some help with that? Make a free Monster profile today. You can allow recruiters to contact you with job opportunities, and you can get job alerts sent directly to your inbox. It's a quick and easy way Monster can help you get on the right track to a promising new job.
This article is not intended as a substitute for professional legal advice. Always seek the professional advice of an attorney regarding any legal questions you may have.
