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Why Employers Check Credit -and What They Find
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Why Employers Check Credit -and What They Find
A credit report for employment doesn't show your score, but only your credit report, which is modified with payments and debt.
Through our Nerdwallet contributors are experts in their field and have a range of backgrounds in journalism, finance, and consulting. The By Our Nerdwallet team adheres to strictest editorial standards to ensure our readers have the information necessary to make financial decisions with confidence. Learn more about our
Updated Dec. 2 2022
Editor: Kathy Hinson Lead Assigning Editor Personal finance, credit scoring, financial management and debt Kathy Hinson leads the Core Personal Finance team at NerdWallet. Prior to joining NerdWallet, she worked for 18 years working at The Oregonian in Portland in roles including copy desk chief and team leader for design and editing. Prior experience includes news and copy editing for various Southern California newspapers, including the Los Angeles Times. She received a bachelor's degree in journalism and mass communications at The University of Iowa.
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Employers may check their credit report to get insight into a potential hire, including indications of financial trouble that could suggest a possibility of theft or fraud. The company doesn't obtain your credit score, instead they show an updated form of credit reports.
Employer credit checks are more likely for jobs that require a security clearance or access to sensitive consumer data , or company data. Such checks may be conducted by your current employer before a promotion.
What you need to be aware of about your employer , including the information that prospective employers will look at, what rights you have and the reasons why this procedure is controversial, and how to present your best face.
Be aware of how your credit score is scored
Check your score for free and the factors that impact it, as well as suggestions on how to continue building.
What makes an employer look at your credit report?
A person's credit score can flag potential problems which employers want to stay clear of:
A lot of late payments may suggest that you're not organized and responsible, or don't meet your obligations.
Using lots of available credit or having a high amount of credit are indicators of financial stress, which could be seen as increasing the chance of theft or fraud.
Any evidence of mishandling your personal finances could suggest an unsuitable candidate for a job that involves being responsible for company money or customer information.
The Professional Background Screeners and HR.com's study of the human resources professionals in 2021 found that financial or credit checks are included in 51% of background checks for employers within the U.S. [0The HR Research Institute. HR Research Institute . .
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What do employers see when checking your credit?
Potential employers see a modified copy of the credit report says Rod Griffin, senior director of public education and advocacy at Experian.
Here's what employers will notice:
You can identify your information by your full name and address.
Your credit accounts and your credit available.
Your payment history.
The details of your work or employment background that you have reported on credit forms.
Lenders or bankruptcy.
Here's what employers don't want to be able to see:
Your .
Account numbers appear on your credit account.
Your earnings.
Medical expenses.
Any identifying information that could be used to discriminate, including your birth year, marital status, or race or ethnicity.
Can a credit check by your employer hurt your score?
Businesses may get an employee credit score from one of the three main credit reporting bureaus which include Equifax, Experian and TransUnion -- or they could use a specialty screening company.
The credit check counts as an element of your credit score and won't take the points from your score, like an application for credit cards could.
The credit report won't reveal other soft inquiries on your credit score, meaning prospective employers won't have the ability to find out if any other companies have viewed your credit report. But you will be able to see the soft inquiries when you want to request your own credit report.
What are your legal rights?
Notification and consent Employers must inform you if it intends to investigate your credit score and must get your written consent. It is required by the Fair Credit Reporting Act requires the notice to be "clear and prominent" that it is not mixed in with other language.
Warn before being rejected A warning before rejection: If an employer may reject you based somewhat or totally on your credit score, it must tell you before the decision is taken. It must provide you with an "pre-adverse action notice," including a copy of the report and an overview about your rights.
Time to respond The company must allow for a reasonable time -- usually three to five business days- before it proceeds. The goal is to let you explain the red flags in the report, or, in the event that the information you're looking for is incorrect, fix the mistakes with the reporting company.
Final notice, right to a free copy: After it acts, the employer must follow up with a post-adverse action notice, giving information about the company that provided the reporting agency, its contact information and stating your right to receive a free version of your credit report after 60 days.
There is controversy over credit checks for employers
Certain states have limited the use of employer credit checks, including California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington.
People who are against employer credit checks say that a worker's credit report has no bearing on their ability to perform most jobs. In addition, critics argue that this practice is harmful to workersparticularly job seekers from minority groups due to the fact that it could hinder the road to economic stability.
"There are some significant racial disparities in the history of credit and credit scores" states Chi Chi Wu an attorney on staff for the National Consumer Law Center. "Studies reveal there is a significant difference between Black as well as Latino consumers have lower credit scores as a group," she notes, in citing the wealth gap between racial groups and other kinds of discrimination that make debt harder to pay off and more difficult to accumulate.
"So, when you use credit history in employment (background checks), you are sort of baking that racial disparity into the decision-making process for job seekers," Wu says.
People who favor it claim that credit checks provide employers with insights into a job candidate's judgement and decision-making , which could affect their business's future.
It is possible to check with your local government to learn whether employer credit checks are prohibited in your particular area.
How can you prepare for the credit check?
Conducting a credit check proactively allows you to see what an employer might do -and possibly correct any incorrect negative marks in advance.
You're entitled at least 1 free credit score every week, directly from each of the three bureaus . If you find any errors make sure you correct them by a .
Once you've completed that, keeping your credit report in good condition is a wise financial decision and will help protect your credit score too. Here's how:
Be sure to pay your bills on time. Paying history is the single biggest influence on your credit score, so making on-time payments can boost your score while also keeping delinquent marks off your report.
Use available credit lightly. The experts advise against using credit make use of any credit card at any given timeand the lower limit is more beneficial. That shows you're not overextended financially and also helps your score since credit use is the second biggest influence on them.
Monitor your credit report regularly. Some personal finance websites, such as NerdWallet provide a score that you can check at any time you'd like, offering you the ability to keep an eye on your credit report for any negative marks.
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