Why do employers check credit?
Employers want to gather as much information about potential hires as possible, and your resume and cover letter usually aren’t enough.
The investigation can be more or less rigorous depending on your industry and level of seniority. If you want to work in finance or government, expect your employer to exhaust every tool available before bringing you on board.
Here are a few reasons employers will request your credit report:
1. You’re handling money
It’s no surprise that employers want to keep their cash in safe hands.
Hiring managers assume that candidates with the skills to manage their own money successfully could do the same for the company.
At the same time, managers may fear that a worker who’s deep in debt will be more likely to embezzle company funds.
2. You’re making important decisions
Your prospective employer might want to check your credit history even if you’re not handling large amounts of cash.
Missed payments could be taken as a sign that you’re unorganized or irresponsible. If you can’t manage your own household, how are you going to handle big, important decisions at the office?
Expect even greater scrutiny if you want to work for the government or an influential company. An employee who’s desperate for cash may be vulnerable to bribery; managers could fear that outside forces will influence your decisions and ask you to hand over confidential information.
3. To protect against fraud
Stains in your credit history don’t make you a criminal, but employers may want a look at your credit report just to ensure you are who you say you are.
By matching the information on your credit report with the information you provided in your application, employers can be reasonably sure they’re not being hoodwinked.
What do employers see when they run a credit check for jobs?
The modified credit report that potential employers can see will exclude some personal information — notably, anything that could violate equal employment laws. That includes your date of birth, account numbers and details about your spouse.
It will, however, show your name, address, Social Security number and details about your debt, including mortgages, credit cards and student loans.
Employers will be able to see whether you pay your bills on time, how much debt you have, whether your accounts have gone to collections and whether you’ve ever suffered a bankruptcy or foreclosure.
You can tell prospective employers about your fabulous organizational skills all you want, but late payments will tell them a different story.
What percentage of employers check credit?
A full 94% of companies conduct some type of background check on potential employees, according to a survey from the Professional Background Screening Association.
About 38% of employers do credit checks for certain candidates and positions, but only 14% say they run checks on everybody. If your job involves handling money or making big decisions, there’s a much greater chance a company will ask to see your credit history.
What legal rights do I have?
Local laws may protect you. Several states ban or limit the use of credit checks for employment purposes, including California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington. Even some cities have passed laws: New York City and Chicago prohibit employer credit checks.
You must give consent. Employers can’t simply take a peek at anybody’s credit report; you need to give written permission. Prospective employers also need to tell you in advance that a credit check is part of the application process.
Bankruptcy shouldn’t count. The point of bankruptcy is to give you a fresh start. By law, potential employers aren’t allowed to discriminate against you because you’ve filed for bankruptcy. However, they can still use any of the other debt and payment information contained within your report.
You can contest mistakes. If an employer decides not to hire you because of your credit report, it’s required by law to tell you and point you toward the credit bureau that supplied the information. You also have a right to contest any of the information within that report.
Does an employer’s credit check hurt your score?
When you apply for a new loan or credit card, your prospective lender will request your credit history from one of the major credit bureaus.
This is called a “hard inquiry.” It will lower your credit score by several points and typically stay on your report for 24 months.
But an employment credit check is a “soft inquiry” because it doesn’t involve applying for new credit. That means it won’t affect your score in any way.
How do I prepare for an employer credit check?
Before a hiring manager even asks, you should be thinking about what your credit background says about you.
You’re entitled to a free copy of your credit reports every 12 months through AnnualCreditReport.com. Those can be pretty detailed; for a quick snapshot of your credit, you may want to check your credit score for free through one of several providers.
Some of those providers, such as Credit Sesame, also offer free credit monitoring so you’ll stay informed of any changes to your credit over time.
If something seems off, check your report for any errors and report them to the offending credit bureau. Mistakes do happen, and you don’t want them affecting your chances of landing a job.
The biggest red flags for employers are missed payments and high debt. If you’re struggling to pay down your debt or make your minimum payments, you may want to consider debt consolidation.
With a debt consolidation loan, you take out a new low-interest loan and use it to pay off all your high-interest debt. You won’t reduce the amount you owe right away, but you’ll save money and pay off your debt much quicker when you aren’t losing so much to interest.