NERDWALLET | November 2, 2017
Potential employers don’t see an applicant’s credit score, but they get a modified credit report showing debt and payment history.
Employers sometimes check credit to get insight into a potential hire, including signs of financial distress that might indicate risk of theft or fraud. They don’t get your credit score but instead see a modified version of your credit report.
Here’s what you need to know about employer credit checks, including what information prospective employers can see, your rights and how to present the best possible face.
Why would an employer look at your credit?
An applicant’s credit history can flag potential problems an employer would want to avoid:
- Lots of late payments could indicate you’re not very organized and responsible, or don’t live up to agreements
- Using lots of available credit or having excessive debt are markers of financial distress, which may be viewed as increasing the likelihood of theft or fraud
- Any evidence of mishandling your own finances could indicate a poor fit for a job that involves being responsible for company money or consumer information
The National Association of Professional Background Screeners worked with HR.com on a nationwide survey of 1,528 human resources professionals about screening checks. The results showed 25% of the HR professionals use credit or financial checks while hiring for some positions, while 6% check the credit of all applicants.
Credit checks are more likely for jobs that involve a security clearance or access to money, sensitive customer data or confidential company information.
Credit checks are more likely for jobs that involve a security clearance or access to money, sensitive customer data or confidential company information. Such checks also may be done by your current employer before a promotion.
What do employers see when checking your credit?
Potential employers see a modified version of your credit report, says Rod Griffin, director of public education for credit bureau Experian. The report omits information that might violate equal employment regulations, such as your birth year or marital status. An employer credit report does not show your credit score or disclose any account numbers.
An employer credit report does not show your credit score or disclose any account numbers.
The report will show your payment record, the amount you owe and your available credit.
Does an employer credit check hurt your score?
Businesses may get an employer credit report from one of the three major credit reporting bureaus — Equifax, Experian, and TransUnion — or may use a specialty screening company.
The credit check counts as a “soft inquiry” on your credit, so it won’t take points off your credit score, the way a credit card application might.
The credit reports also won’t show other soft inquiries on your credit, so potential employers won’t be able to see if other employers have checked on you. But you will be able to see the soft inquiries if you request your own credit report.
What are your legal rights?
Notification and permission: An employer must notify you if it intends to check your credit and must get your written permission. The Fair Credit Reporting Act requires the notice to be “clear and conspicuous” and not mixed in with other languages.
Several states and cities have laws prohibiting employer credit checks or restricting how the information can be used.
Several states and cities have laws prohibiting employer credit checks or restricting how the information from reports can be used. Check with your state’s labor departmentor your city government to find out if you are covered by the laws.
Warning before rejection: If an employer might reject you based somewhat or totally on your credit report, it must tell you before the decision is made. It has to send you a “pre-adverse action notice,” including a copy of the report used and a summary of your rights.
Time to respond: The employer must wait a reasonable period — usually three to five business days — before it proceeds. The goal is to let you explain the red flags on the report, or, if the negative information is incorrect, let you fix the mistakes with the reporting company.
Final notice, right to free copy: After it acts, the employer must follow up with a post-adverse action notice, giving the name of the credit report agency, its contact information and explaining your right to get a free copy of the report within 60 days.
How can you prepare for a credit check?
Checking your own credit proactively lets you see what an employer would — and potentially fix any erroneous negative marks in advance.
You’re entitled to at least one free credit report every 12 months directly from each of the three bureaus by using AnnualCreditReport.com. If you spot errors, get them corrected by using a dispute process.
Once you’ve done that, keeping your credit report in good condition is a smart financial move — and it will protect your credit score, too. Here’s how:
- Pay all bills on time. Payment history has the single biggest influence on your credit scores, so making on-time payments helps your score while also keeping delinquent marks off your report.
- Use available credit lightly. Experts say it’s best to use less than 30% of your available credit on any card at any time — and lower is better. That shows you’re not overextended financially and also helps your score because credit usage has the second-biggest influence on scores.
- Monitor your credit report regularly. Some personal finance websites, such as NerdWallet, offer a free credit report and score that you can check whenever you like — giving you a way to regularly watch for negative marks in between the annual access granted by the credit bureaus.