What Really Shows Up on a Credit Check for Employment
You survived the interviews. You deftly explained where you see yourself in five years. You managed to sparkle even when you talked about your greatest weakness.
Now there’s just one thing standing between you and your dream job: a credit check.
But what happens when you have a lackluster credit score? Will past missteps haunt your career prospects for years to come?
What Shows up on a Credit Check for Employment?
First the good news: Employers don’t see your credit score when they run your credit. Instead they see a modified version of your credit report.
Here’s what appears:
- Open accounts with the account numbers redacted
- Payment history
- Outstanding balances
- Amount of open credit
- Accounts in collections
- Bankruptcies from the past seven to 10 years, depending on the type of bankruptcy
- Foreclosures from the past seven years
Now here’s the bad news: The things employers look for when they check your credit — primarily negative payment history or a high credit utilization ratio — are the top two factors that can crush your credit score.
So if you have a low credit score, your credit report will probably have information that could be a red flag to employers.
If a company does check your credit for hiring purposes, you don’t have to worry that your score will be affected. The pull is what’s known as a soft check, which has no impact on your score. A hard check, which occurs when you apply for credit, can ding your score by a few points.
If your current employer wants to check your credit, they’ll need your written consent to do so.
When Do Employers Do Credit Checks?
For a lot of applicants, a credit check is unlikely to be an issue. A 2020 survey of more than 1,500 human resources professionals by the National Association of Professional Background Screeners (NAPBS) found that just 6% of companies ran credit checks on all employees.
Obviously, credit checks are most common for roles that involve handling money or sensitive information. If your personal finances are in trouble, employers may worry you’re more likely to embezzle money or commit fraud.
But some companies run credit checks simply because they think that if you can manage your own money well, it’s a sign that you’ll be a good employee — though a growing number of state and local governments oppose the practice. At least 11 states, Washington, D.C., plus Chicago, New York City and Philadelphia, limit the use of credit checks for candidates who don’t deal with finances or sensitive data.
Employers usually do credit checks at the end of the hiring process. Most do them after a conditional job offer has been made, though some conduct them following a job interview.
Under the Fair Credit Reporting Act, you have to consent in writing for an employer to pull your credit.
What to Do Before a Hiring Manager Runs Your Credit
If you’re a job candidate and you’ve been asked to consent to a credit check, you’ll want to know exactly what the employer will see on your reports.
The best way to do this is by obtaining a free credit report from all three bureaus at AnnualCreditReport.com. Ordinarily, you’re only entitled to one free report per year from each bureau, but due to the pandemic, you can receive a free report every week through December 2022. However, checking your reports this frequently probably isn’t necessary.
Your credit reports are genuinely free on AnnualCreditReport.com. Unlike some sites, you don’t need to fork over your credit card info for a temporary trial to obtain them.
If you find any inaccurate information, it’s vital that you dispute it pronto with the bureaus — and let the hiring manager know that you’re disputing it as well.
But when the report contains negative information that’s correct, the proactive approach is best. If you’ve made mistakes in the past, ask to talk with the hiring manager before they run your credit.
If your credit troubles are the result of hardship, like a death in the family, a layoff or a divorce, you may want to explain the circumstances to the hiring manager, though be careful about offering TMI.
You’ll be in a better position to make your case if you can explain how you’re working to fix things and why your previous mishaps won’t affect your job performance.
If the employer opts not to hire you because of what they found in your credit reports, they’re required under the Fair Credit Report to notify you. They’ll also need to give you a copy of the credit report they used to make the decision, a summary of your rights and ample time to dispute the decision.
While this process may seem stomach-churning, it helps to understand the employer’s reason for checking your credit: It’s usually about risk mitigation. They want to make sure they’re not hiring someone who’s likely to steal from the company or its customers, rather than judge you for missing a credit card payment.
Why You Need to Check Your Credit Reports, Not Just Your Score
Regardless of whether you’re on the job market, you need to regularly monitor your credit reports. And no, signing up for a credit score monitoring service isn’t enough.
While these services can be helpful, only the reports furnished by the official bureaus will show you what’s really causing any credit troubles.
Think of the credit score as your temperature. If you develop a fever, it could be a sign of an underlying problem. Obtaining your credit report is like getting lab work. It’s the only way to get to the root of the problem.
Trust us: Even if you’re not job hunting or applying for credit soon, it will pay off to address these problems now. Finding a job is stressful enough. Don’t add unnecessary pressure down the line by neglecting to keep up with your credit report.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected].