Why Employers Check Credit -and What They See
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What employers are looking for when they check credit -and What They Find
A credit check for employment won’t reveal your score, just a modified credit report with debt and payment history.
By NerdWallet Follow NerdWallet’s social media to stay informed about updates
3 February 2023
Editor: Kathy Hinson Lead Assigning Editor Personal finance, credit scoring, debt and money management Kathy Hinson leads the core personal finance team at NerdWallet. Prior to joining NerdWallet, she worked for 18 years with The Oregonian in Portland in roles including copy desk chief and team director of design and editing. Her previous experience included news and copy editing at several Southern California newspapers, including the Los Angeles Times. She earned a bachelor’s degree in mass communication and journalism at The University of Iowa.
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Employers often check credit reports to gain insight into hiring potential employees, such as signs of financial distress that could suggest a possibility of theft or fraud. They don’t get the credit scores, instead they show an updated version of your credit report.
Credit checks by employers are more likely for jobs that require a security clearance or access to sensitive consumer information or information about the company. These checks could be conducted by your 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 best possible image.
Know how your credit is scored
Check your score for free and the factors that impact it, and get tips on how to keep building.
Why would an employer take a look at your credit score?
An applicant’s credit history may indicate problems that which employers want to stay clear of:
Many late payments can 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 seen as increasing the risk of fraud or theft.
If you have any evidence of having a problem managing your own finances can indicate a poor fit for a job that is responsible for the company’s money or consumer information.
The professional background screeners and HR.com’s poll of HR resources professionals in 2021 found that checks for financial or credit are included in 51% of employers’ background checks in the U.S. [0The HR Research Institute. HR Research Institute . .
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What are the employers looking for when they check your credit?
Employers who are interested in hiring you will see a modified version of your credit report, says Rod Griffin, senior director of public education and advocacy at Experian.
Here’s what employers will notice:
Identifying information like your full name and address.
Your credit accounts as well as your credit limit.
The history of your payment.
The elements of your work or employment history that you have reported on credit forms.
Lenders or bankruptcy.
Here’s what employers will not see:
Your .
Account numbers appear on your credit accounts.
Your earnings.
Medical charges.
Any identifiable information that can be used to discriminate against you, for example, your birth year and marital status as well as race or ethnicity.
Can a credit check by your employer hurt your score?
Companies can obtain an employee credit score through one of the three main credit reporting bureaus which include Equifax, Experian and TransUnion or an agency that specializes in screening.
The credit check is considered an item on your credit report and won’t shave points off your credit score, like the application for a credit card could.
The credit report also won’t reveal other soft inquiries on your credit score, meaning prospective employers won’t be able to see if other employers have checked on you. However, you’ll be able to see the soft inquiries if you request your own credit report.
What are your legal rights?
Notification and authorization Employers must inform you if it intends to investigate your credit score and must get your written consent. In the Fair Credit Reporting Act requires the notice to be “clear and conspicuous” that it is not mixed with any other language.
Warning before rejection: If an employer might decide to reject you based on a portion or entirely on your credit score, it must tell you before the decision is taken. The company must send you a “pre-adverse action notice,” which includes a copy the report used and an overview of your rights.
Response time The company must allow a reasonable period — usually between three and five days- before it proceeds. The objective is to let you explain the red flags in the report, or should the report’s negative information be incorrect, fix any errors with the reporting company.
Notice of finality, the right to a a free copy: After it acts and the company is required to be notified by a post-adverse action notification, stating the name of the credit reporting agency, the contact details and a statement of your rights to get a free copy of the Report within the 60-day period.
The controversy surrounding employer credit checks
Some states have restricted the use of credit checks, including California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington.
Those who object to employer credit checks say that a worker’s credit report is not a factor in their ability to do the majority of jobs. Moreover, critics say the practice hurts workers- especially minority job seekers — because it can cause a problem on the path toward economic stability.
“There are significant racial disparities in the history of credit and credit scores” says Chi Chi Wu an attorney on staff for the National Consumer Law Center. “Studies indicate the fact that Black as well as Latino people have lower score on their credit as a whole,” she notes, using reasons such as the wealth gap between races and other forms of discrimination that make the debt more difficult to pay off and more difficult to accumulate.
“So when you make use of credit history for employment background checks you’re kind of adding that disparity in racial status into your process of deciding job seekers,” Wu says.
People who favor it claim that credit checks offer employers insights into a job candidate’s judgment and decision-making that could impact their business in the future.
You can check with your or your city government to learn whether employer credit checks are prohibited in your particular area.
What can you do to prepare for a credit check?
Doing a preemptive check on your credit allows you to see what an employer might do -and help you rectify any negative marks that are incorrect in advance.
You’re entitled at least one free credit report each week, directly from each one of three credit bureaus by . If you find any errors make sure you correct them by an .
Once you’ve done this, keeping your credit report in good condition is a smart financial choice as it can protect your credit score, too. Here’s how:
Be sure to pay your bills in time. The payment history is the biggest impact on your credit scores, so making on-time payments can boost your score as well as keeping late payments off your credit report.
Use available credit lightly. It is recommended to use it use any credit card at any time- and lower is better. That shows you’re not overextended financially and also helps your scores because credit usage is the second biggest influence on their scores.
Monitor your credit report regularly. Certain websites for personal finance, such as NerdWallet, offer a and score that you can review at any time you’d like, offering you the ability to keep an eye on your credit report for any negative marks.
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