Credit checks for employment
When applying for a job, your potential employer may run a credit check. A credit check is otherwise known as a credit inquiry, where someone pulls a summary of your credit. This can’t happen without your written consent. There are two kinds of inquiries—hard and soft. When an employer runs a credit check, this is a soft inquiry. It will not affect your score, unlike a hard inquiry, which can.
While employers can‘t get all your information provided in a typical credit report (like your credit score or account numbers) they will be able to get access to certain information that indicates your state of financial wellness. This is important, as how you handle your finances may affect how potential employers assess your ability to be a reliable employee should you be hired.
If you’re worried about what a potential employer might think about your finances, it might be wise to consider using a free tool like Chase Credit Journey® to track and monitor your credit score. You don’t need to be a Chase cardmember to access this tool, and your score will not be impacted when you check on it.
In this article, we’ll explore:
- Why employers check credit
- What employers look for in a credit check
- If employers can view your credit score
- Who runs pre-employment credit checks
Why do employers check credit?
An employer may run a credit check for several reasons. Let’s dive into each below.
Verifies your identity
As part of a larger background check, your pre-employment credit check could help confirm your identity by providing important information. This can include your legal name, your home address and a list of previous employers. Employers want to make sure you’re telling the truth about who you are, and they can feel more confident knowing you are sharing truthful information by comparing it against a credit check.
Indication of how responsible you are
Your credit can be used as a way to help an employer get an idea of how responsible you are. Managing finances can be a complex undertaking that can require a high degree of organization. Having large amounts of debt could indicate to a potential employer that you may make risky choices. If an employer sees that you regularly make late payments or have fallen into credit card debt, they may feel that you aren’t able to take on other important responsibilities that could come with the job you’re applying for.
On the other hand, if you have a history of making timely payments, this can serve as a sign that you take proactive steps to responsibly manage your finances and are effective at meeting deadlines.
Your financial savviness
If you’re applying for a job that specifically deals with running financial accounts, reporting numbers and managing lots of documentation around finances, an employer may run a credit check on you. This can be an effective way to gain important insights into financial behavior and ensure you are savvy enough to handle the specific tasks that the job entails.
Red flags
An employer may want to protect themselves from potential fraud or theft. By running a credit check on your account, they can see if you are someone who could pose financial harm to their company.
These red flags could include:
- Late payments
- Missed payments
- Significant debt
- Bankruptcies
Pre-employment checks are subject to the Fair Credit Reporting Act (FCRA), so these checks can consider no more than 7 years of credit history, unless the job commands a salary of $75,000 or more. If this is the case, up to 10 years of financial history can be included in the report. The FCRA also allows bankruptcies to be reported for up to 10 years, no matter what the salary is.
It’s important to note that if an employer runs a credit check and comes across some of these negative items, they must give you the chance to respond to them. If the results of your credit check are the reason an employer declines to hire you, the company must tell you this in writing.
Industry
Whether or not an employer runs a credit check on you can depend on the industry you work in. For example, if the employer deals with sensitive matters like money, data or private corporate information, they may run pre-employment credit checks on their prospective employees.
What do employers look for in a pre-employment credit check?
You may be wondering what employers may see on your pre-employment credit check. Some of the information that employers look for in a credit check include:
- Available credit
- Payment history
- Debt-to-income ratio
- Bankruptcies
- Current and former employers’ names and addresses
- Collection accounts for unpaid bills
- Other credit inquiries made into an applicant
- Financial distress and/or the potential for fraud
On the other hand, employers will not receive the following information:
- Credit scores
- Income
- Marital status
- Race or ethnicity
- Religion
- Political affiliation
- Information related to medical bills (even if they're unpaid)
- Public records other than bankruptcy, such as criminal records—however, an employer may get access to these via other background checks
Remember, an employer will not receive this credit check unless you give written authorization. However, if you do not give permission, it’s possible that your employer may withdraw your application. Everything else being equal, having a healthy credit report may enable you to have a better chance of getting an offer for a job that requires pre-employment credit checks.
To help secure your chances for employment, consider using tools that help monitor your credit. Chase Credit Journey gives you the opportunity to see how specific actions you take will affect your credit, as well as insights into how you can improve it over time. You’ll also get access to credit alerts, so anytime there are changes to your account, you’ll be notified.
Can employers see your credit score?
No—the employer only gets a credit report that provides information on the items listed above.
Who runs credit checks?
Research by the Professional Background Screening Association (PBSA) shows that 16% of U.S. locations run credit and financial checks on an on-going basis as part of their background screening. About 4% of U.S. organizations are planning to expand or begin to implement these credit checks. Additionally, 45% of non-U.S. organizations run these checks on an ongoing basis as well.
About 51% of all U.S. organizations include credit/financial checks in pre-employment background checks. Certain states, however, may limit or prohibit credit checks entirely. According to the National Conference of State Legislatures (NCSL), these states include:
- California
- Colorado
- Connecticut
- Hawaii
- Illinois
- Maryland
- Nevada
- Oregon
- Vermont
- Washington
Keep in mind that the rules and regulations around credit checks are ever-changing, so it’s important to research the state you and your potential employer are in to know your rights.
In conclusion
When applying to jobs, keep in mind that the employer could run a pre-employment credit check to see if there are any red flags that stand out to them. To improve your chances of getting hired from an employer who could run a credit check, consider improving your credit. You can also monitor your credit, credit score, credit reports and important activity happening to your accounts by enrolling in Chase Credit Journey. Using free tools like this may help enhance your financial savviness and feel confident about an employer looking at your credit report.
