What Is A Credit Check For Employment?

When it comes to getting hired for a job, you may be surprised to hear that you might be asked to consent to a credit check. A credit check is when a third party requests to see your credit report in order to get an insight into your financial history and money management practices. While lenders look at your credit report to determine whether to approve you for a loan, a credit check for employment allows potential employers to assess related skills for a job, such as ones where you’ll be managing company finances.

What Is Included In An Employment Credit Check?

An employment credit check will show your history of handing credit and loans, or in other words, how much money you borrow and how well you pay it back. An employment credit check typically comes as a soft pull on your credit, meaning that unlike a credit check for a mortgage, it won't affect your credit. An employment credit check may include details like:

• Personal information including your full name and address
• A list of your credit accounts and your available credit
• Your payment history
• Bankruptcies or liens against you

What Isn’t Included In A Credit Check For Employment?

While an employment credit check includes the amount of money you borrow and your payment history, it won't include information about:

• Income
• Marital status
• Race or ethnicity
• Religion
• Political affiliation
• Information related to medical bills or history
• Public records other than bankruptcy

How Far Back Can A Credit Check For Employment Go?

According to the Fair Credit Reporting Act (FCRA), pre-employment credit checks can consider no more than 7 years of credit history, unless the job pays $75,000 or more. For jobs at or above the $75,000 threshold, 10 years of financial history can be reported. The FCRA allows bankruptcies to be reported for up to 10 years regardless of salary.

Why Do Employers Check Credit For A Job?

An employment credit check is designed to determine how reliable an employer thinks you will be – especially if you’re in a position where you’ll be handling money, such as if you’re working in a bank or retail store, or if you need a special security clearance or often deal with confidential information.

Even if you’re not in such a position, a credit check can offer insights into how seriously you take your obligations – if you don’t bother to pay your bills on time, is there a risk you might also be cavalier with clients or deadlines? Or if you have a high credit utilization rate, it might seem like you’re negligent with money, which could indicate your overall level of responsibility.

Having poor credit or financial difficulties doesn’t necessarily mean you will be an unworthy employee, but it can raise questions to potential employers, and it’s wise to be aware of that possibility. If you’re concerned about any potential negative marks on your credit report, it’s best to prepare an explanation in case an employer asks you questions.

If the company decides not to offer you a job based on information they found in your credit report, they have to let you know exactly which data excluded you from the job.

How Do You Prepare For An Employment Credit Check?

If you’re actively looking for a job and believe you’ll be subject to a credit check, there are several ways you can prepare, including:

• Check your credit report to see what your current situation is and dispute any errors if necessary
• Make on-time payments on all accounts
• Try to keep a low credit utilization on your credit cards
• Avoid opening multiple new accounts at one time and only open accounts when necessary
• Make regular debt payments
• Prepare an explanation if necessary if you believe your credit report may raise questions

Can An Employer Check Your Credit Without Your Permission?

Many states don’t allow employers to perform credit checks. But if you don't live in one of those states, you still have some protections. According to the FCRA, an employer (or prospective employer) must get your written permission to check your credit. Then, if they decide not to hire you based on the results of the credit check, the employer must:

• Send you an adverse action notice, informing you that you're not being hired due to your credit history
• Provide a copy of the credit report with the name of the reporting agency
• Provide a time to respond to the adverse action notice

Say you are applying for a job with Company ABC. You agree to have them check your credit as part of the application process. If Company ABC decides not to hire you, in part or completely due to information from your credit report, they have the legal obligation to send you an adverse action notice. You are legally entitled to know about any problems the employer is seeing on the credit report, and you are also allowed to dispute any issues.

Can A Credit Check For A Job Keep You From Getting Hired?

A credit check by itself can’t disqualify an applicant from getting a job or promotion, but it may serve as a mitigating factor. It's important to know that while you can say no if an employer asks to pull your credit, the employer is legally allowed to not hire or promote you if you don't agree to the credit check. The best course of action is to make sure that there is nothing on your credit report that would disqualify you from a job.

Will A Credit Check For A Job Affect Your Credit Score?

An employment credit check is typically a “soft pull”, so it won’t affect your credit score. Soft credit pulls do not show up on your credit report, so there is no impact to your credit score. Since it's not on your credit report, any future potential lenders will not even be able to see that the soft pull happened.

The Bottom Line

While you might think of getting a credit check when you are applying for a new credit card or loan, you can also get a credit check for employment. A pre-employment credit check is usually only a soft pull, so it won't affect your credit score. A potential employer may do a credit check to make sure that there aren't any red flags on your report, especially if you're being hired for a position that deals with sensitive information or handles money.

One way to help prepare for an employment credit check is to use the app from Rocket Money^SM to keep up with your credit and finances. That way you'll be ready in the event an employer requests a credit check.