The process of looking for a job is complex, as is the hiring process that can follow. You may be psyched to be offered a position but then learn that a credit check is part of the vetting.
This step can be concerning for some prospective employees, as it makes them wonder why their financial history matters, how their credit will look, and whether it could be considered a strike against them.
Not all companies run credit checks, but if you are negotiating with one that does, here are answers to your questions about this procedure, including:
• What is a credit check for employment?
• Why do employers check credit?
• What are employers looking for when they check credit?
• What requirements and limitations govern 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.
Sometimes, what’s called a background check may include a credit check as well as a scan 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?
Here’s how a pre-employment credit check works: 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.
Ready for a Better Banking Experience?
Open a SoFi Checking and Savings Account and start earning up to 4.50% APY on your cash!
What Do Employers See on Credit Checks?
You’re likely curious to know exactly what a prospective employer could see when they peek at your credit. Here’s the answer.
What They See
A potential employer will only see some aspects of your credit report. Typically, they will access:
• Your name and address
• Your payment history
• What credit accounts you hold and your available credit
• Information on your work history that you have reported
• Any bankruptcies or liens.
What They Don’t See
Next, consider what they don’t see when accessing your data as part of a credit check:
• Your credit score
• Your income
• The account numbers connected to your credit accounts
• Medical bills
• Details such as your age, marital status, race, or ethnicity. These are protected as part of discrimination protection (more on that in a moment).
And also worth noting: There is a seven-year restriction on certain kinds of background information for positions that pay less than $75,000 per year, including that relating to bankruptcy and liens.
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 US 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, and Washington, as well as the District of Columbia. Delaware has a law that prohibits these checks by public employers until an applicant has been offered a job conditionally.
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 banker), 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.
Recommended: How to Check Your Credit Score for Free
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. Wondering how to review your file? 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).
You 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.
Does an Employer Credit Check Hurt Your Credit?
You may wonder, Can an employer background check affect your credit score? Typically, the answer is no. These kinds of inquiries are known as a soft pull versus a hard pull. It won’t take points off your credit score the way a deeper inquiry (from, say, a credit card company you applied to) could.
Why Employer Credit Checks Are Controversial
Some employers may feel that credit checks provide them with additional important information on a candidate before they make a hire.
However, the controversy around employer credit checks is this: Others would say that a credit report has no impact on a person’s ability to do most jobs.
They also feel that delving into a credit report could reflect negatively on minority job seekers and others who may not have as positive credit history. In this way, accessing credit information could contribute to discrimination.
A credit check for employment purposes can throw you for a real loop in the job interview process. 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 responsibly with the right banking partner can help get you on the right track.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
What do employers look for when doing credit checks?
When an employer does a credit check, it is typically to assess how reliably a candidate handles financial responsibilities, decision-making ability, and possible propensity towards money-related crimes.
Why is an employer asking for a credit check?
An employer may ask for a credit as a way of gaining more insight into your financial habits and how well you make decisions. If they see high levels of debt and late payments, they might think twice about your abilities, especially in a financial position.
Can a job offer be rescinded due to bad credit?
It is legal in many states for a job offer to be rescinded after a credit check. Your prospective employer might see too many signals that your have poor decision-making and money-management skills.
Photo credit: iStock/ljubaphoto
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit activity can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.50% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 8/9/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet..
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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 website .
This article is not intended to be legal advice. Please consult an attorney for advice.
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.