Let’s face it: the hiring process can be a bit of a … process.
You show up to the job interview looking extra fresh, feeling confident in your ability to conquer the long list of questions about your qualifications, but what you might not be prepared for is a potential employer taking a deep dive into your financial history.
A credit check for employment can be an extra hurdle in the hiring process that helps the company assess more than just your resume. However, employers have certain requirements and limitations when it comes to vetting potential employees using credit checks.
What’s a Credit Check for Employment?
Pre-employment credit checks happen when a company uses a third-party company to check a candidate’s credit history and see their past approach to consumer debt.
It’s often slipped in with the traditional pre-employment background check that scans for criminal activity and is a tool that helps the potential employer make a decision about whether or not to hire the candidate.
Credit checks are more commonly used in industries that deal directly with money, like accounting, banking, and investing, but any employer could decide to run pre-employment credit checks.
How Does a Pre-Employment Credit Check Work?
Once the job offer is on the table, an employer will solicit a third-party provider to run a credit check for employment purposes that features the following information about the potential employee:
• Full name and previous names.
• Current address and past addresses.
• Social Security number.
• Incurred debts such as credit card debt, car loans, mortgages, student loans, and personal loans, including the full payment history on each account and any late payments.
One thing pre-employment credit checks cannot include is the potential employee’s date of birth because it could allow their age to be used against them in a discriminatory manner.
Federal Limits on Pre-Employment Credit Checks
The Federal Trade Commission’s Fair Credit Reporting Act (FCRA) is federal legislation that protects the personal information collected by consumer reporting agencies and ensures that any entity that uses the information notifies the consumer of adverse actions taken on the basis of the report.
Here are a few of the FCRA requirements for employers who run a background credit check for employment on potential or current employees:
• Employers cannot legally obtain background information on an employee “based on a person’s race, national origin, color, sex, religion, disability, genetic information (including family medical history), or age (40 or older).”
• Employers must inform employees in writing of their intention to perform a background check or credit check, indicating they might use the information to make decisions about their employment.
• Employers must then get written approval from the applicant or employee to perform the background check and certify to the third-party provider that the employer:
◦ Notified the applicant and received their permission to obtain a background report.
◦ Fully complied with FCRA requirements.
◦ Will refrain from discriminating against the applicant or employee or misusing the information as a violation against Equal Opportunity laws or regulations.
• Before taking any adverse employment actions against an applicant or employee, employers must provide them with a notice that includes a copy of the report itself and a copy of A Summary of Your Rights Under the Fair Credit Reporting Act .
• After taking any adverse employment action, the employer must inform the applicant or employee:
◦ Of the name, address, and phone number of the company that conducted the background check, and the fact that it did not make the final decision.
◦ That they were rejected because of information in the report.
◦ That they reserve the right to dispute the report’s accuracy or completeness and receive a free report from the same reporting company within 60 days.
State and Local Limits on Pre-Employment Credit Checks
For the most part, many U.S. states allow employers to obtain credit reports in the hiring process in a fair and equitable way. Certain states, however, restrict how the obtained information can be used. Those states include California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, Washington, and the District of Columbia. Several other states have legislation pending that could prohibit or place restrictions on credit inquiries for employment.
Certain localities also have prohibitions and restrictions on pre-employment credit checks, including New York City, Philadelphia, and Chicago.
What Are Employers Looking for in Your Credit Report?
So, if they’re digging deep into your credit history to determine whether or not to hire you, what exactly are employers looking for in a credit report? Here are a few things that could help them with their hiring decision:
History of Handling Money
Particularly in cases where a potential employee would be handling large amounts of money on behalf of a company’s clients (like an investment broker or a bank), a pre-employment credit check can help ensure trustworthiness and the ability to keep their funds safe and secure.
If there’s a history of mismanaging money in a credit report, it can be seen as a red flag for potential employers who are concerned the candidate would mismanage the business’s money.
Even in cases where a potential employee isn’t directly handling money, certain dings in their credit history can still signal a red flag to employers. Negative credit events like foreclosures, numerous bank account closings, late payments, high credit utilization rate, or liens against a job applicant can be seen as signs of negligence or carelessness that they don’t necessarily want in their workforce.
Potential for Criminal Activity
Another reason for running a background credit check for employment is to assess whether a job candidate could be a risk for criminal behavior. For example, if a potential employee has several large debts, it could leave the employer wondering whether they’d be tempted to embezzle or commit fraud to cover their own debts and financial issues.
Anticipating an Employer Credit Check
Being prepared in advance of an employer credit check can sometimes be half the battle.
Here are a few steps you can take before the job interview even begins:
1. Obtain a copy of your credit report as soon as you can. You’re entitled to one free copy of your credit report per year from all three of the major credit bureaus (Equifax, Experian, and TransUnion) and can get it by visiting AnnualCreditReport.com . Allow plenty of time to look into any errors and file disputes, if necessary.
2. Address any errors on your credit report. If you notice any discrepancies when you pull up your free credit report, you can provide a brief statement to dispute the findings and get on top of it before the potential employer sees it. You can also write statements that explain the cause for a discrepancy like a late payment. For example, perhaps you were late on a mortgage payment because of a disability or illness.
3. Provide your written permission for the employer to run the credit check. This way, you’re fully prepared for the next step in the hiring process and have done everything you can to put your best foot forward.
A credit check for employment purposes can throw you for a real loop in the job interview process, but it isn’t necessarily the end of your candidate experience. If you’re prepared for an employment credit check in advance, there’s a good chance you can present your case in a clear and compelling manner that resonates with the employer.
Checking your credit reports is the first step to knowing what information a potential employer might access. After that, handling your finances with a cash management account like SoFi Money® is a good way to keep tabs on transactions and limit surprises that might come up in a credit check for employment. Using the SoFi app is an easy way to access and manage your money anytime, from anywhere.
Photo credit: iStock/ljubaphoto
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC . Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.