Do Employers Check Credit Scores?
What are the odds of a company running a credit check on a potential employee? Here’s how your credit job could impact your job search.
5 min read
Take a deep breath. It's doubtful that your offer is in jeopardy, but there are several moving parts to this frequently asked question. Although a bad credit score may negatively impact your possibilities when job hunting, don't fear. There are a few things to examine when it comes to these kinds of credit checks. In this post, we'll run through what pre-employment credit checks are and why a potential employer would want to run one.
Do employers run a credit check for employment?
The good news is that according to the National Association of Professional Background Screeners, only 16% of employers run a credit check on all candidates, while 31% of others check some applicants. Sure, if you’re an anxious person, these stats still might make you feel flustered, but why not look at it this way? This still means that 84% of employers don’t run credit checks on potential employees. Realistically, these are pretty good stats for those fretting about a less-than-perfect credit score.
That doesn’t mean that you’re 100% in the clear, though. Pre-employment credit checks can harm a candidate's application in some cases. According to a Demos survey of job applicants with poor credit history, one in seven respondents reported missing a job opportunity due to credit history.
On the bright side, prospective employers cannot view your credit report without your consent (as we’ll discuss later), and the review won't hurt your credit score. Also, some states like Connecticut, California, and Delaware restrict these credit checks. So, if you happen to be in one of these states, you don't have to worry at all.
What do employers see on a credit check for employment?
For those companies that do run credit checks, employers run them for employment after a conditional job offer or promotion. They will request a credit report from one or all of the three major credit bureaus, Experian, Equifax, and TransUnion. Although the information included varies, it generally includes your current and previous legal names and addresses and your social security number.
It may also include data on any of your payments, outstanding auto and student loans, open credit lines, recent credit applications, and debt levels. If you've filed for bankruptcy before, your credit report will also include unpaid tax liens.
The important thing here is what they cannot see: your actual credit score. They also aren’t privy to any negative credit data that’s more than seven years old.
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Why do employers run credit checks?
Even though reasons for pre-employment credit checks vary from one company to another, employers and job-recruiters review applicant credit reports to:
Protect their organizations
Most employers run credit checks to verify an applicant's identity and their history with money. Doing so helps them determine whether you're a threat to the organization and its employees. Any instances of theft, fraud, or embezzlement on your report are signs you cannot be trusted, especially if you're applying for a finance-related position. If you're in massive debt, an employer may reject your application because they assume you'll be susceptible to bribery, fraud, and embezzlement.
Quality of hiring for financial roles
The position itself plays a big role in answering the big question above.
If you’re in a role where you won’t be handling large budgets or client finances, or working with sensitive information, you likely won’t have to worry about a pre-employment credit check impacting your offer.
If you are pursuing one of those roles, though, red flags on your report (foreclosures, bankruptcies, high utilization) can be perceived as a sign that the role requires better financial instincts and responsibility.
What are your legal rights regarding pre-employment checks?
Just because employers are legally allowed a snapshot of your financial health doesn't mean you're at their mercy. Before a credit check for employment, employers are legally expected to:
Notify and get written approval: Before a pre-employment credit check, prospective employers must notify you in writing and get written approval from you.
Warn you: If the employer rejects your job application because of information in your credit report, they must inform you through a pre-adverse action notice. You're also entitled to a copy of the credit report they used and information on the credit bureau or agency they used to obtain your report.
Allow you time to respond: After sending the notice, employers are required to wait about three to five business days before making a decision. This allows you time to explain or dispute any negative information and fix any incorrect data with the credit bureau.
Note: the credit report cannot include negative information that is more than seven years old. So, if you fell behind on some payments a decade ago, that shouldn't prevent you from finding employment today. Also, to prevent instances of discrimination due to age, the credit report cannot include your birth date.
Stay on top of your finances
Remember, if you are subject to one, a pre-employment credit check doesn't always have to end without a job – it typically won’t lead to an offer getting revoked unless the role requires strong financial skills.
However, if this is something weighing on your mind, and you do have a less than favorable credit score, you can always better prepare through improved spending habits and by knowing exactly what's on your report.
Take the necessary steps to limit your debt and work towards fixing your credit score by opening an N26 debit account today. Using a debit card for everyday purchases can help curb your credit card debt. Plus, with features like instant notifications on all account activity and automatic spending categorization, you’ll always have a clear picture of what’s happening in your bank account.
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