What do employers see when checking your credit?

According to Experian, employers are allowed to check a potential hire’s credit, but they only see a modified version.

This version includes a lot of information about your lines of credit, such as payment history, types of loans, and amounts owed.

But to protect your identity, they can’t view account numbers and other personal information like a lender would be able to see.

Critically, employer reports also omit your credit score. 

Can an employer credit check hurt your score?

An employer credit check does not hurt your credit score.

This is because when an employer pulls your credit, it counts as a “soft inquiry”, unlike a hard inquiry like a credit card application, which does hurt your credit score.

In fact, when an employer checks your credit, it doesn’t even show up on your credit report at all.

Why would an employer look at your credit?

When applying for a job, your credit history can uncover potential problems an employer would want to avoid:

• Lots of late payments could mean you don’t have a strong work ethic or follow through on what you say. It can also be indicative that your time management skills are lacking.
• If you’re not able to handle your own personal finances, this may be evidence that you’re not a good fit for a position that involves being responsible for company money.
• Using too much credit or carrying a lot of debt can be seen an indication of financial distress. This can even make it more likely for theft to happen since the person has already shown they are irresponsible when managing their finances.

The National Association of Professional Background Screeners worked with HR.com on a nationwide survey to find out how often employers check applicants’ credit scores before hiring them for certain positions. The results showed that 25% of the human resources professionals surveyed said they use this type of screening, while 6% do it without exception during every hiring process.

And a survey by CareerBuilder found that 72% of employers conduct background checks on prospective employees and include a credit check 29% of the time.

Which jobs typically require a credit check?

Some companies run credit checks on all their applicants while others only run them for certain positions. But jobs that require a security clearance or access to money are the most likely to use them.

For example, banks or other financial institutions usually require credit checks for all their employees. And this stands to reason since almost every position will handle money in some way.

But they also want you to understand credit and be able to deal with customers and their financial needs.

Also, many government jobs require credit checks, including military and political positions. This is because so many of them require security clearance and a high demonstrated level of trustworthiness.

What are your legal rights as a job applicant?

Notification and permission: Employers are required by law to notify you if they intend on checking your credit and must get your written permission. The Fair Credit Reporting Act requires the notice to be “clear and conspicuous” so that you know what is happening, not mixed in with another language. 

Not all states have laws prohibiting employer credit checks or restricting how the information from reports can be used but some do–so make sure you ask a state labor department before applying for any jobs.

Warning before rejection: Your potential employer has to tell you if they might reject your application based on what is in your credit report. They need to send the appropriate paperwork (a “pre-adverse action notice”) before making any decision and provide an explanation of how it could affect decisions about hiring.

Time to respond: The employer should wait a reasonable period of time (usually three to five days) before they proceed with the hiring process. The goal is to let you explain any red flags on your credit report, or if the negative information can be disproved, allow for mistakes in reporting the company’s records to be fixed.

Final notice and right to free copy: After the employer makes its decision, it is required to send you a post-adverse action notice, which gives you the name of the credit report agency it used, along with its contact information, while notifying you of your right to get a free copy of the report within 60 days.

Laws restricting credit checks

While federal law allows employers to use credit information as part of their hiring process, there are currently 10 states with laws that restrict it: California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington.

These laws don’t necessarily prohibit the practice, but they do regulate it in some way. 

For example, some states, such as Colorado, allow credit checks only for financial institutions and managerial positions. And Maryland allows it for positions with access to expense accounts, positions with confidentiality aspects, and a few others.

Other state-specific exemptions include positions with access to large amounts of money, law enforcement, and positions with access to specified personal information.

6 tips for improving your credit score before an employer check

You can improve your credit score to help make sure that poor credit doesn’t get in the way of landing a job.

First of all, get a copy of your credit report from all three bureaus (Equifax, Experian, TransUnion) before you ever start applying for jobs. You can get one free copy a year at AnnualCreditReport.com.

Next, comb over your reports to make sure there are no errors.

Once you’ve done that, start looking for things you can improve.

Remember that employers can’t look at your credit score, so your concern is just items that they can see.

Of course, your credit score will improve as a direct result, but you don’t have to shoot for a specific number.

1. Dispute any errors you find. If you find errors, such as late payments you think are inaccurate or accounts that don’t belong to you, dispute them immediately. You can usually do this online through each credit bureau, or you can send dispute letters.

2. Write goodwill letters. If you aren’t able to dispute your negative items, you can try writing your creditors goodwill letters. These are simply requests to remove items from your report out of kindness.

3. Write 609 letters. If you don’t have any luck with initial disputes or goodwill letters, you can try 609 letters. These just allow you to exercise your rights under Section 609 of the FCRA code that says a creditor has to prove an account belongs to you or remove it from your record.

4. Start making your payments on time. Make a decision from this point on that you will never make a late payment again if possible. If you start developing better habits now, you may be able to explain your past mistakes to prospective employers. 

5. Pay down your debt. Your credit utilization score accounts for 30% of your credit score. And it is something some employers look at as well. Paying off some debt can make your portfolio look a lot better.

6. Consider hiring a credit repair company. Credit repair companies can help you repair your credit, sometimes faster than you can by yourself. They’re experts at knowing what types of letters to send and how to dispute negative items.

Final thoughts

Bad credit doesn’t mean you can’t have your dream job.

Clean up your credit report as much as possible before applying for your next job, and work on developing better credit habits moving forward.