What Do Employers Look For On Your Credit Report?
When you apply for a job these days, it’s pretty common for potential employers to run a credit check with your permission.
They do this as a way to flag potential issues with employees they might want to avoid.
But what are they actually looking for?
What do employers see when checking your credit?
According to Experian, employers are allowed to check a potential hire’s credit, but they only see a modified version.
This version includes a lot of information about your lines of credit, such as payment history, types of loans, and amounts owed.
But to protect your identity, they can’t view account numbers and other personal information.
Critically, employer reports also omit your credit score.
Can an employer credit check hurt your score?
You may be wondering if this type of inquiry will hurt your credit score.
After all, if you’re on the hunt for jobs, you may be applying at a lot of different companies.
They actually don’t even show up at all, so you don’t need to worry about potential employers being able to see how many jobs you’ve applied for.
Why would an employer look at your credit?
Think of a credit report as representing another aspect of your behaviors.
While not everyone agrees with the practice, most employers feel it gives them a snapshot of some habits that could be red flags.
And excessive debt could be viewed as a fraud risk because the potential could be headed for financial disaster. Basically, if your credit report looks like you mismanage your money, most employers may feel you will mismanage theirs as well (fair or not).
But the job you're applying for doesn’t have to involve money for an employer to do a credit check.
For example, a lot of late payments could signal to an employer that you are irresponsible or unorganized, or that you can’t be trusted with sensitive information.
Which jobs typically require a credit check?
Some companies run credit checks on all their applicants while others only run them for certain positions. But jobs that require security clearance or access to money are the most likely to use them.
For example, banks or other financial institutions usually require credit checks for all their employees. And this stands to reason since almost every position will handle money in some way.
But they also want you to understand credit and be able to deal with customers and their financial needs.
Also, many government jobs require credit checks, including military and political positions. This is because so many of them require security clearance and a high demonstrated level of trustworthiness.
What are your legal rights?
To be clear, no employer can check your credit unless you consent. And this involves a form you have to sign and acknowledge before it can be done.
And they also have to clearly represent what they are doing. In other words, their intention to check your credit can’t be hidden in fine print. It has to be represented on its own form.
The employer also has a legal responsibility to inform you if their decision not to hire you was based on your credit report.
And they can’t decide to check your credit based on factors that are considered discrimination, such as race, sex, disability, age, and national origin.
Laws restricting credit checks
While federal law allows employers to use credit reports as part of their hiring process, there are currently 10 states with laws that restrict it.
These laws don’t all necessarily prohibit the practice, but they do regulate it in some way.
For example, some states, such as Colorado, allow credit checks only for financial institutions and managerial positions. And Maryland allows it for positions with access to expense accounts, positions with confidentiality aspects, and a few others.
Other state-specific exemptions include positions with access to large amounts of money, law enforcement, and positions with access to specified personal information.
6 tips for improving your credit score before an employer check
If you live in one of the 40 states that allows any business to run credit checks as part of their screening process, there are some things you should do to prepare.
First of all, get a copy of your credit report from all three bureaus before you ever start applying for jobs. You can get one free copy a year at AnnualCreditReport.com. We have a guide that walks you through how to do that, step-by-step.
Next, comb over your reports to make sure there are no errors.
Once you’ve done that, start looking for things you can improve.
Remember that employers can’t look at your credit score, so your concern is just items that they can see.
Of course, your credit score will improve as a direct result, but you don’t have to shoot for a specific number.
Dispute any errors you find. If you find errors, such as late payments you think are inaccurate or accounts that don’t belong to you, dispute them immediately. You can usually do this online through each credit bureau, or you can send dispute letters.
Write goodwill letters. If you aren’t able to dispute your negative items, you can try writing your creditors goodwill letters. These are simply requests to remove items from your report out of kindness.
Write 609 letters. If you don’t have any luck with initial disputes or goodwill letters, you can try 609 letters. These just allow you to exercise your rights under Section 609 of the FCRA code that says a creditor has to prove an account belongs to you or remove it from your record.
Start making your payments on time. Make a decision from this point on that you will never make a late payment again if possible. If you start developing better habits now, you may be able to explain your past mistakes to prospective employers.
Pay down your debt. Your credit utilization score accounts for 30% of your credit score. And it is something some employers look at as well. Paying off some debt can make your portfolio look a lot better.
Our credit reports follow us around to almost every area of our lives.
And less-than-perfect records can affect everything from where we live to where we work.
Luckily, there are things you can do to improve it.
If you’re currently in the market for a new job, it’s important that you examine your own reports so you can start working on them now.
After all, your credit is only one small aspect of how you handle your life.
Make sure it doesn’t hold you back from what you want in life.