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The Reasons Employers Check Credit- and What They See

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The Reasons Employers Check Creditand What They See

A credit report for employment doesn’t show your score, just a modified credit report with the payment and debt history.

By NerdWallet Follow NerdWallet’s social media for updates

Feb 3, 2023

Written by Kathy Hinson Lead Assigning Editor Personal finance, credit scoring, financial management and debt Kathy Hinson leads the core personal finance team at NerdWallet. Previously, she spent 18 years with The Oregonian in Portland in positions such as copy desk chief and team editor and designer. Previous experience included news and copy editing at various Southern California newspapers, including the Los Angeles Times. She graduated with a bachelor’s in mass communications and journalism in The University of Iowa.

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Employers may check their credit report to determine the background of the potential employee, and this includes signs of financial distress that could suggest a possibility of theft or fraud. The company doesn’t obtain your credit score, but instead see a modified version of your credit report.

Employer credit checks are more likely to be conducted for jobs that require the need for a security clearance or access to money, sensitive consumer data , or company data. Such checks may be performed by your current employer prior to a promotion.

Here’s what you need to be aware of regarding employer relations, such as the information that prospective employers will look at, what rights you have, why the procedure is controversial, and how to present the most professional face.

Know how your credit is scored

Find your score free of charge and the variables that affect it, as well as insights into ways to keep building.

What makes an employer look at your credit score?

A person’s credit score could indicate potential issues an employer would want to stay clear of:

A lot of late payments may suggest that you’re not organized and responsible, or fail to adhere to the terms of your agreements.

Utilizing a lot of credit or having a high amount of credit are indicators of financial stress, which could be viewed as increasing the likelihood of theft or fraud.

Any evidence of mishandling your personal finances may indicate a poor choice for a job which requires you to be responsible for company financial information or customer data.

The professional background screeners as well as HR.com’s poll of HR resources professionals in 2021 found that checks for financial or credit are part of 51% of employer screenings for background in U.S. [0The HR Research Institute. HR Research Institute . .

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What do companies look for when they look at your credit report?

Potential employers will be able to see a revised versions of your credit report, says Rod Griffin, senior director of public education and advocacy at Experian.

Here’s what employers will see:

Identification of information such as the full address and name of your home.

Your credit accounts and your credit limit.

The history of your payment.

The parts of your work or employment history that you have self-reported on credit applications.

Liens or bankruptcy.

Here’s what employers won’t see:

Your .

Account numbers on your credit cards.

Your earnings.

Medical charges.

Any identifying information that could use to make you a target for discrimination such as your birth date, marital status, or race and ethnicity.

Can a credit check by your employer hurt your score?

The business may obtain an employer credit report from one of the three major credit report bureaus including Equifax, Experian and TransUnion — or may use an additional screening firm.

The credit check will count as an item on your credit report therefore it won’t take the points from your score the way a credit card application might.

The credit report also won’t display other soft inquiries about your credit, so potential employers won’t be able to determine if other employers have looked into your credit report. But you’ll be able see soft inquiries if you want to request an individual credit report.

What are your rights under the law?

Notification and consent Employers must inform you if it intends to examine your credit report and must get your written permission. In the Fair Credit Reporting Act requires the notice to be “clear and clear” as well as not be mixed in with other languages.

Warning before rejection: If an employer might reject you based somewhat or entirely on your credit score, it must tell you prior to the decision being taken. The employer must provide you with an “pre-adverse action notice” including a copy of the credit report that was used as well as an overview of your rights.

Time to respond: The employer must wait for a reasonable time typically between three and five days- before it proceeds. The aim is to help you clarify any red flags that appear on the report, or, if the negative information is incorrect, fix the mistakes with the reporting company.

Notice of finality, the right to a free copy: After it acts in a negative manner, the business must send a follow-up post-adverse action notification, stating information about the company that provided the reporting agency, its contact information and a statement of your rights to obtain a report within 60 days.

The controversy surrounding employer credit checks

Certain states have restricted the use of employer credit checks, which includes California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington.

The people who oppose employer credit checks claim that the credit history of a worker has no bearing on their ability to complete the majority of jobs. Moreover, critics say the practice hurts workersparticularly job seekers from minority groups due to the fact that it could hinder the path to stability in the economy.

“There are some notable racial differences in credit history and credit score,” says Chi Chi Wu who is a staff attorney of the National Consumer Law Center. “Studies reveal that Black as well as Latino consumers have lower credit scores in general,” she notes, citing reasons like the wealth gap between races and other kinds of discrimination that make the debt more difficult to pay off and more difficult to accumulate.

“So that when you utilize credit history for employment (background checks) you’re kind of baking that racial disparity into your decision process for job seekers,” Wu says.

People who favor it claim that credit checks offer employers insight into a prospective job candidate’s judgment and decision-making that could impact their business’s future.

Check with your local government to find out if employer credit checks are not allowed in your particular area.

What can you do to prepare for a credit check?

Doing a preemptive check on your credit lets you see what an employer will doand possibly correct any incorrect negative marks ahead of time.

You’re entitled at least an unrestricted credit file per week from any one of three credit bureaus by . If you spot errors make sure you correct them by a .

Once you’ve completed this keeping your credit score clean is a smart financial choice — and will protect your credit score, too. Here’s how:

Pay all bills in time. Paying history has the most impact on your credit score Making timely payments helps your scores as well as keeping late payments off your credit report.

Utilize credit cards with a light touch. The experts advise against using credit use any credit card at any given timeand that the lower limit is more beneficial. It shows you’re not strained financially and improves your scores since credit utilization is the second biggest influence on them.

Keep an eye on your credit report often. Certain personal finance websites such as NerdWallet offers a credit score you can view anytime you want — providing you with a means to keep an eye on your credit report for any negative marks.

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