Do Employers Check Credit Reports?

A lot of people are in a period of transition right now when it comes to their careers. People are moving jobs and employers, and there’s a lot of shifting in careers. This has been the case since the start of the COVID-19 pandemic.
That means that you might be going through the hiring process. While there are opportunities that can come with a new position, there can also be a lot of stress inherent to finding a new job.
For example, you may have to go through a background check. A potential employer could look at things like your criminal history and your school records. What many people in the job market don’t know is that employers might also research their financial background.
The following are things to know about the logistics, legality, and implications of employers checking the credit history of job applicants or employees.

Does An Employer Need Consent?

There are laws at every level that play a role in what an employer can look for on a background check of an applicant, how they can use the information, and what they have to tell the applicant about their actions.
Written consent is required if an employer is going to hire an outside agency to check out an applicant or candidate. An outside agency can include a private investigator or a firm that does criminal background checks. Employers also must have the applicant’s written consent if they’re going to check their credit report.
In some cases, depending on the location, written consent may be required before an employer can gather other information, like military service or school records.
Most employers broadly ask for consent before checking anything, even if they don’t legally have to.
An employer has to give an applicant written notice and can’t force an applicant or employee to sign it.
If an applicant refuses, the employer can take you out of the running for consideration for the position.

Can An Employer Check Your Credit?

This brings us back to our original question—can an employer check your credit?

The simplest answer is that it depends on your state. Under federal law, an employee can check an applicant’s credit report if they have written permission.
If an employer decides against hiring someone because of the information on their credit report, they’re also required to notify them.
In some states, an employer may not be allowed to check an applicant’s credit report at all. In others, they may be able to pull it only for certain positions.

Why Would An Employer Check Your Credit Report?

While 95% of companies say they conduct some type of background check on potential employees, only around 16% pull credit reports or do financial checks on all candidates. However, an estimated one-third do checks for some candidates.
An employer can look at your financial history, but not in the same way as a lender. They can’t actually see your credit score, nor can a possible employer see your credit account numbers.
Your credit report and credit score are also two different things.
Your credit report is an overview of your credit history, like your available credit, balances, and payment history. A credit score is a number that serves as a way to sum up that information into a concise rating.
The number one reason employers say they check financial histories is to protect their employees and customers.
A credit report can be a way to verify your identity, education, and background. It can be one step to preventing embezzlement or theft and seeing previous employers. It can be in the eyes of an employer a view of how a candidate deals with their responsibilities.
Employers want to make the right decision, and they want to understand whether or not someone is going to be responsible and dependable. They can’t tell the future, so the best thing they have to go on is the past.
If you’re irresponsible in your personal finances, an employer might think the chances are high that you’re going to similarly be an irresponsible employee.
Most employers don’t run any financial checks until they’ve already decided to hire someone because they take time and money to complete.
The biggest likelihood you’ll have an employer run a credit check is if you’re applying for a position involving money or finance.

What Does An Employer See?

An employer, when checking your financial history, can see most of what a lender would see, with the exception of your credit score.
Much of the credit reporting data that lenders see and thus employees do too can relate to insurance, past employment, and legal activity.
A prospective employer can see open lines of credit, student loans, auto loans, missed or late payments, accounts in collection, and bankruptcies. They can also see outstanding balances.
As a note, having a possible employer doing a credit check won’t affect your score.

An inquiry related to employment is treated as a soft inquiry. That means that it’s not visible to anyone aside from you, and it’s not included in your credit score.

Can An Employer Find Out About a Bankruptcy?

This was briefly mentioned above, but yes, an employer can potentially find out about bankruptcy in your past. This is true even if an employer doesn’t pull your credit report. For example, they can do a public record search and find out about it.
Federal law prevents employers from firing a current employee for filing for bankruptcy, but if you’re an applicant, you don’t have the same protection.

What Are An Applicant’s Legal Rights?

Finally, you do have rights. Because of the Fair Credit Reporting Act, employers can’t check your credit history without you knowing—they must have your written consent. You have to be given separate notice that an employer is going to pull your credit, and you have to give your explicit written permission.
In some states, there are restrictions on using credit information to make an employment decision. 

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Posted - 03/29/2022