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Nearly one-third of companies that conduct background checks on job candidates also review their credit as part of the process, according to a survey by Career Builder.
The Fair Credit Reporting Act requires that employers obtain your written consent before checking your credit and restricts them from accessing your credit score. They only receive a limited version of the report, which excludes details like your birth date and marital status, but they may still make potentially biased judgments based on the information found.
For roles involving financial management, employers might look at your credit history to assess your payment punctuality. Additionally, they may use findings from your report to take disciplinary action against or even terminate an existing employee, according to Nolo, a legal resource, or to evaluate your suitability for a promotion.
"Heavy use of available credit or high levels of debt are signs of financial instability, which could be perceived as increasing the risk of theft or fraud," states NerdWallet.
It is also used to confirm your identity in situations that require a security clearance.
At present, 11 states limit employers' ability to use your credit history when making hiring decisions. These states include California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington. The laws differ by state, but they may prevent employers from accessing reports at all or from coercing employees into consenting to a credit check.
The employer's credit check will not affect your credit score. "These reports do not display other soft inquiries, so potential employers will not be able to see if other employers have looked into your credit," explains NerdWallet. "However, you can see soft inquiries if you request your own credit report."
If the Credit Pull Has a Negative Impact on You
If the employer plans to use the report as a reason to reject your application, the Federal Trade Commission states that they must first provide you with:
an alert that includes a copy of the consumer report that influenced your decision;
a copy of
Your Rights Under the Fair Credit Reporting Act Summary
You will be given a few days to respond to the findings made by the employer.
"An adverse action notice informs individuals of their right to review the information reported about them and to correct any inaccuracies," according to the FTC. You can dispute "the accuracy or completeness of any data provided by the consumer reporting agency," and you are entitled to receive a free report from that company to inspect it yourself.
If the employer still intends to take "adverse action" (such as not hiring you or denying a promotion) despite your response, they must provide you with a notice of this decision.
Although you aren’t required to allow your employer to access your credit report unless you're in one of the 11 states mentioned earlier, refusing may hurt your chances of securing the position. Before diving into the job market, consider reviewing your credit with one of the three major bureaus (or using one of the many apps that provide credit data) and work on improving your report.
