In this article:
- Why Do Employers Check Your Credit?
- What Can Employers See When They Check Your Credit?
- Can Employers See Your Credit Score?
- Your Rights When Employers Check Your Credit
- How Far Back Do Employers Look?
- What States Ban Pre-Employment Credit Checks?
- How to Prepare for an Employer Credit Check
- Does an Employer Credit Check Affect Your Credit?
- Can Bad Credit Disqualify You From a Job?
Many employers, especially when hiring for positions that include financial management, perform credit checks on job candidates before making employment offers. Employers may use credit report information to verify an applicant's identity and to look for signs of excessive debt or past financial mismanagement.
Employers cannot see your credit score, but they can view a modified, limited version of your credit report. You have rights under the Fair Credit Reporting Act (FCRA) that restrict how and when your employer can pull your credit. Also, some states ban the use of credit checks in hiring and promotion decisions entirely.
If you're on the hunt for a new job, read on to learn more about why employers check credit, what they can see and how you can get prepared.
Why Do Employers Check Your Credit?
Some employers use a limited version of your credit report to inform decisions about hiring or promoting employees.
Your credit report is a chronicle of your financial history, including the loan and credit card accounts you've applied for and opened, how long you've had them, account balances and whether you've made payments on time.
Employers may check your credit as a way to:
- Gauge your ability to handle money skillfully
- Get a sense of your overall reliability
- Look for identifying information that verifies that you are who you say you are
Learn more >> What to Know About Employment and Credit
What Can Employers See When They Check Your Credit?
Employers see a modified and limited version of your credit report. It contains information about debt you've incurred, including credit cards, student loans and mortgages, as well as your history of making payments on your debts.
| What Employers Can See | What Employers Can't See |
|---|---|
| Identifying information, including your full name and addresses | Your credit score |
| Past and current employers (in some cases) | Your income |
| Your credit accounts, balances and payment history, including accounts in collections | Protected information, such as your date of birth, marital status, spouse information, religion, race or ethnicity |
| Credit inquiries | Public records (apart from bankruptcies) |
| Past and current bankruptcies | Medical bills (though unpaid medical collections of $500 or more may appear on your credit report) |
A candidate who appears knee-deep in debt, has accounts in collections or has recent bankruptcies could give employers pause about hiring for financially sensitive jobs.
Learn more >> Which Accounts Appear on Your Credit Report?
Can Employers See Your Credit Score?
Employers are never able to see your credit score. Your credit score is meant to indicate your creditworthiness to a lender. It's not something a potential employer would use to make a hiring decision and is not included in the modified credit report that they see.
Your Rights When Employers Check Your Credit
Companies that use credit checks to make employment decisions must comply with a number of FCRA regulations when pulling your credit.
Employers must:
- Get your permission before running a credit check: The employer has to tell you in writing that your credit may be used to make hiring decisions. Then, they must receive your written consent to proceed with pulling your credit.
- Tell you if they don't hire you because of your credit: If the results of your credit check are the reason an employer declines to hire you, the company must tell you so in writing. They must also include a copy of the credit report they used to make their decision, along with a summary of your rights under the FCRA.
- Give you an opportunity to dispute the report: You have the right to review your credit report and dispute any inaccuracies that may have influenced the hiring decision. In addition to responding to the company's decision, you'll likely want to file a dispute with the three credit bureaus (Experian, TransUnion and Equifax) as well, so future employers and lenders don't also receive incorrect information about your credit.
- Provide you with a notice after: The employer must notify you of its final decision to reject you for the job. They must also include the name of the credit reporting agency they used and notify you of your right to get your own free copy within 60 days.
How Far Back Do Employers Look?
Pre-employment credit checks can consider no more than seven years of credit history, unless the job commands a salary of $75,000 or more, in which case up to 10 years of financial history can be reported. In addition, the FCRA allows bankruptcies to be reported for up to 10 years, no matter what the job in question pays.
What States Ban Pre-Employment Credit Checks?
State provisions on the use of credit checks for employee screening are evolving. At this time, these states restrict the use of credit checks in making hiring decisions:
- California
- Colorado
- Connecticut
- Hawaii
- Illinois
- Maryland
- Nevada
- Oregon
- Vermont
- Washington
In addition to the states above, some cities restrict employee credit checks:
- New York City
- Chicago
- Philadelphia
For more information on rules governing pre-employment credit checks where you live, consult your state's labor department.
How to Prepare for an Employer Credit Check
The prospect of having an employer pull your credit can add an additional layer of stress, but preparing beforehand can help. Here are steps you can take to prepare:
1. Check Your Credit
Check your credit reports so you know what an employer is likely to see. Make sure all the information is correct, including identifying information like your name and address, the accounts listed and your payment history. If you find an error, you have the right to dispute it using each credit bureau's internal procedure.
2. Make Sure Your Accounts Are Current
If you have any past-due accounts, bringing your payments up to date should be your top priority. Getting caught up on payments will prevent additional late payments from being added to your credit report.
Going forward, make all of your monthly payments on time to build up a positive payment history and improve your credit over time.
3. Pay Down Your Credit Card Balances
The amount of revolving credit that you use relative to your total credit limits is called your credit utilization ratio. Keeping your credit utilization ratio low is a sign that you're managing debt responsibly.
Experts recommend keeping your credit utilization under 30%, but the lower, the better. Ideally, aim to pay revolving credit card balances off in full each month.
4. Avoid Unnecessary Credit Applications
Multiple applications for new credit in a short period of time can indicate that you may be financially overextended. To avoid signaling that you may be under financial stress, it's a good idea to limit hard inquiries before your employer credit screening.
5. Be Prepared to Explain Negative Information
If your report contains a few negative entries, or even more serious issues, you can be proactive by preparing to address them if they come up during the hiring process. If you have missed payments, you could communicate with your employer about what happened. For example, you may have fallen behind on payments due to a temporary financial difficulty, such as a layoff.
Does an Employer Credit Check Affect Your Credit?
No, a pre-employment credit check won't affect your credit.
Employment credit checks generate a soft inquiry on your credit report, comparable to one that appears when you check your own credit. These types of inquiries are not factored into calculating your credit scores. That means you won't have to worry about them hurting your score, or impacting your ability to qualify for new credit in the future.
Learn more >> What Is a Soft Inquiry?
Can Bad Credit Disqualify You From a Job?
Depending on where you live, it's possible for bad credit to disqualify you from getting certain jobs. In some states, your credit can be the sole reason for the rejection, or a single contributing factor among many.
Some employers may weigh your credit history more heavily for certain positions. If you are applying for a financial or managerial role, for example, or you want to work with the military or in a security position, negative marks on a credit report could potentially hurt your chances.
That said, it's unlikely that your credit will disqualify you from most jobs. Experian strongly recommends that employers not make hiring decisions based solely on credit histories, but on a more comprehensive view of job candidates.
The Bottom Line
In general, your credit likely won't affect your chances of getting a job unless you're pursuing a financial or management position or one in which you handle sensitive information.
If you're concerned about what a potential employer will see if they perform a credit check on you, reviewing your Experian credit report for free ahead of time can give you an idea of what to expect.