When you’re applying for new jobs, it’s common for an employer to conduct a background check. An employment background check will primarily look at your criminal history.
Employers have a responsibility to their other employees and their customers to make sure they’re hiring people who are going to be safe, and doing a criminal background check can help with that.
Employers might also look at your employment history, confirm any education and professional licenses you say you have, and they may look at proof of citizenship to make sure you’re legally allowed to work in the U.S.
Less often, an employer might check your credit. The following are some things to know about that scenario.
What’s On an Employment Credit Check?
Your credit report contains your financial history, like loans and credit card accounts that you’ve applied for and opened. Your credit history includes details on your payment history and how long you’ve had certain accounts.
Also on your credit history are your credit utilization rate, which is how much you have as outstanding debt as a percentage of the credit available to you, unpaid bills that have gone to collections, and any past or current bankruptcies.
If an employer is doing a credit check for purposes of employment, they can’t necessarily see all the same information a financial institution or lender can see. For example, they aren’t going to be able to see your income or credit scores. Pre-employment credit checks also don’t include your birth year because that could leave open the possibility of age-related discrimination.
Financial institutions use this information to decide whether or not you’re a trustworthy person to extend credit to.
Other information on an employment credit check might include past and current addresses, your full legal name that you used to apply for credit, and past and current employers sometimes.
When a possible employer checks your credit history, it’s a soft inquiry. This is different from a hard inquiry, which is what happens if a lender or financial institution is checking your credit. Soft inquiries won’t affect your credit score but hard pulls do.
Why Would An Employer Check Credit?
Most employers only conduct a background checks as part of their hiring process, and as mentioned, their main reason for doing so is to protect customers and employees.
However, a credit report might be used to verify your identity and your, background and education. A credit report could also be used as a way to reduce the risk of theft or embezzlement occurring, and employers might feel like a credit report can give them a good idea of how a potential employee handles responsibilities in general.
If you’re in financial distress, an employer could be worried that it would lead you to do something desperate at work, like stealing. It could also be an indicator that you can’t manage your obligations in your personal life, so why should your career be any different, at least as a potential employer might view things?
If an employer is going to check an applicant’s credit, it’s usually the last thing they’re going to check before making a hire. They’ve typically made the decision to hire someone already when they check credit. A credit check costs time and money, so most applicants probably won’t go through this screening.
The most likely circumstances where an employer will run a credit check is if you’re applying for a role that’s related to finance or you would be handling money.
Your Legal Rights
A potential employer can’t check your credit or your background without you knowing because of the Fair Credit Reporting Act.
An employer has to get your express written consent before they get your credit history, and not getting it is illegal.
You have to be given a separate notice that lets you know the employer is planning to pull your credit report.
Some states have very particular restrictions about how employers can use credit information to make decisions on employment.
How to Prepare
If you’re currently in the process of applying for new jobs, it’s a good idea to check your own background report and your credit history. This will give you an idea of some of the information that potential employers will see about you.
You don’t want to be surprised if something negative shows up. There might also be errors on your background reports that you need to fix.
You’re entitled to a free credit report from three primary bureaus every year, so take advantage.
Finally, while an employer can legally access your credit report, there are a lot of factors that ultimately go into a hiring decision. for that reason a lot of individuals use credit repair services. One easy way to find such is to simply Google credit repair plus your state. For example, “credit repair Montana.”