Why Employers Check Credit — and What They See
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What employers are looking for when they check credit -and What They See
A credit report for employment doesn’t show your score, it’s just an updated credit report that includes the payment and debt history.
By NerdWallet. Follow NerdWallet on social media for updates
Feb 3, 2023
Written by Kathy Hinson Lead Assigning Editor Personal financial, credit scoring, managing money and debt Kathy Hinson leads the core personal finance team at NerdWallet. Previously, she spent 18 years with The Oregonian in Portland in capacities such as chief of the copy desk and team editor and designer. Prior experience includes news and copy editing at many Southern California newspapers, including the Los Angeles Times. She received a bachelor’s degree in journalism and mass communications in the University of Iowa.
The majority or all of the products we feature come from our partners who pay us. This impacts the types of products we review and where and how the product appears on a page. However, it does not influence our evaluations. Our opinions are entirely our own. Here is a list of and .
Employers may check their credit report to get insight into hiring potential employees, such as indications of financial trouble that could suggest a possibility of fraud or theft. They don’t get your credit score, but instead see an updated copy of the credit history.
Employer credit checks are more likely to be conducted for positions that require a security clearance or access to sensitive consumer data , or company information. Such checks may be performed by your current employer prior to a promotion.
What you need to be aware of regarding employer relations, such as what information prospective employers can look at, what rights you have as a worker, the reason this practice is controversial , and the best way to present the most professional image.
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Why would an employer take a look at your credit?
An applicant’s credit history may indicate problems that employers would like to stay clear of:
Many late payments can indicate you’re not very organized and accountable, or you don’t meet your obligations.
Using lots of available credit or having a high amount of debt can indicate financial stress, which could be considered to increase the risk of fraud or theft.
Any evidence of mishandling your own finances could suggest you are not a good fit for a job that involves being responsible for company accounts or information about consumers.
Background screeners for professionals as well as HR.com’s poll of HR resources professionals in 2021 discovered that financial or credit checks are part of 51% of employers’ screenings for background in U.S. [0* HR Research Institute . .
What are the employers looking for when they look at your credit report?
Potential employers will be able to see a revised versions of your credit report, claims 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 account and available credit.
The history of your payment.
The elements of your work or employment history that you have provided on your credit application.
Lenders or bankruptcy.
Here’s what employers won’t look at:
Account numbers appear on your credit cards.
Any identifying information that could use to make you a target for discrimination for example, your birth year, marital status, or race or ethnicity.
Do credit checks by employers affect your credit score?
Businesses may get the credit reports of their employers through one of the three major credit report bureaus — Equifax, Experian and TransUnion or an additional screening firm.
The credit check will count as an element of your credit score, so it won’t take the points from your score the way a credit card application might.
The credit report also won’t show other soft inquiries on your credit report, which means prospective employers won’t be able to determine if other employers have checked on you. But you will be able see soft inquiries when you want to request your own credit report.
What are your rights under the law?
Notification and authorization Employers must inform you in advance if they intend to check your credit and you must give written consent. The Fair Credit Reporting Act requires the notice to be “clear and clear” and not mixed with other languages.
Warn before being rejected: If an employer might reject you based somewhat or entirely on your credit report they must notify you prior to the decision being made. The employer must provide you with a “pre-adverse action notice” which includes a copy the report and the details about your rights.
Time to respond The company must allow for a reasonable time generally between three and five days- before it proceeds. The objective is to allow you to explain the red flags on the report, or should the report’s negative information be incorrect, you can correct any errors with the reporting company.
Final notice, right to free copy: Once it has acted, the employer must send a follow-up post-adverse action notification, stating information about the company that provided the reporting agency, as well as its contact information and a statement of your rights to get a free copy of the report within 60 days.
The controversy surrounding employer credit checks
Some states have limited the use of credit checks, which includes California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington.
People who are against credit checks by employers claim that a worker’s credit report has no bearing on their ability to do the majority of jobs. Moreover, critics say the practice harms workers — especially minority job seekers as it could cause a problem on the road to economic stability.
“There are some significant racial disparities in credit history and score,” states 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 racial groups and other types of discrimination that makes the debt more difficult to pay off and easier to accrue.
“So, when you use credit history in employment (background checks), you are sort of adding that disparity in racial status into your process of deciding applicants,” Wu says.
People who favor it claim that credit checks give employers insight into a prospective job applicant’s judgement and decision-making that could impact their business in the future.
Check with your local government to find out if employer credit checks are not allowed in your particular area.
How can you prepare for the credit check?
Doing a preemptive check on your credit lets you see what an employer might do — and potentially rectify any negative marks that are incorrect ahead of time.
You’re entitled to at minimum one free credit report each week from any from the three agencies . If you find any errors make sure you correct them through a .
Once you’ve completed this maintaining your credit report in good shape is a wise financial decision — and it will help protect your credit score too. Here’s how:
Make sure you pay all bills on time. Paying history has the single biggest influence on your credit score So making timely payments can boost your score while also keeping delinquent marks off your report.
Utilize credit cards with a light touch. Experts say it’s best to make use of any credit card at any given time- and lower is better. It shows you’re not strained financially and improves your scores because credit usage is the second most significant factor that affects their scores.
Monitor your credit report regularly. Some personal finance websites like NerdWallet offers a credit score that you can check whenever you like — offering you the ability to keep an eye on your credit report for any negative marks.
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