Applying for a New Job With Bad Credit? Here’s What You Need to Know About Employment Background Checks

Michael Collins
September 9, 2020

When interviewing a job candidate, employers oftentimes want to get as much information on them as they can. They want to know that they can count on their employees and that they are the right fit for the job. A big part of this interviewing process (and ultimately the employment decision) is for the prospective employer to see if they can trust this person. Employees interact with customers, operate company property, and are often in charge of a company’s resources. There’s a lot on the line with a new hire so it's only natural employers want to know everything they can!

The most common way to ensure employers can trust potential employees is a background check. According to the National Association of Background Screeners, around 95% employers perform background checks on job seekers! These background checks allow the employer to see if the candidate has had any criminal history or any other issues that they should know about. 

Likewise, employers also conduct a different type of background check: the credit check. I know what you’re thinking. Credit checks are only for potential lenders, right? Why should my employer need to see what my credit history is? Like anyone who might lend you money, employers can go through your credit history to get even more information on you. However, everytime you apply for a job you aren’t going to get a credit check. Around 29% of employers will check your credit when you apply for a job. 

Credit checks can be slightly confusing, so let’s look deeper into what these credit checks are, why they happen and how it can affect your credit!

What is an Employer Credit Check

As mentioned above, an employer credit check is when your potential employer gains access to some of your credit information. When applying for a normal loan or a line of credit, your lender will look into your credit history and your credit score to determine your ability to pay back your loan or line of credit. They will look at your history of paying back your debt, how much debt you currently have, and what type of debt you have. Once they have all of this information, they will make a judgement call on whether you can be trusted to borrow their money or not.

Similarly, employers will perform credit checks. While there are different regulations in each state for employers looking at your credit, they will generally look at the same aspects of your credit that lenders will look at. Unlike normal lenders, they cannot actually see your credit score. Instead they see other aspects of your credit history like your repayment history.

While employers aren’t exactly lending you money like a bank would, they may be trusting many resources to you. Like a bank or loan office, they want to make sure they can trust you with this money.

Why Credit Matters for a Job Offer

If you are applying for a job that requires you to look after company resources, you may have your credit score checked. Such jobs include managerial positions where you are managing fellow employees, or financial institutions where you are managing the company’s money and possibly client money as well. 

When applying for a job, employers likely have no idea how well you can manage resources. They may see some examples of this on your resume, but the best way they can be sure of this is by looking at how you manage your own resources through a financial background check. 

If you are constantly taking out new debt and are failing to make some of your payments, your credit score will go down. If you have poor credit, the less trustworthy you will seem to lenders and potential employers. While your credit might seem irrelevant and that it may not paint the right picture of you, it can be the difference between getting the job and not. While your resume and your interview arguably matter more than your credit, it can still be very important. If the position comes down to you and another candidate and you both have very similar resumes, your credit might be the deciding factor. If you have bad credit, you could see yourself missing out on the job. Get that credit up! 

How Employer Credit Checks Affect Workers

Normally, when your credit is checked by a lender, it can actually hurt your credit score. When this type of credit check occurs, it is called a hard inquiry. A hard inquiry happens when you apply for a loan or credit card. Any hard inquiry can cause your credit score to go down anywhere from 5 to 10 points and it can stay on your credit report for about 2 years. While this does not seem like much, it can really add up. If you are constantly applying for new loans and new credit cards, your score is bound to go down a good amount, 

Thankfully, when employers check your credit, it is not considered a hard inquiry. Instead, employer credit checks are categorized as something called a “soft inquiry”. As you might be able to guess, soft inquiries don’t hurt your score like hard inquiries do. While an employer checking your credit could actually cause you to lose the job, it will not affect your credit score in any type of way. 

Employee Rights and Credit Check

Potential employee credit checks can seem somewhat unfair. Thankfully, there are certain rights and regulations that are in place to ensure that credit checks are done correctly and fairly for those looking for a job. The majority of these regulations come from the Fair Credit Reporting Act, which we will cover in more detail later. Most of the provisions in this legislation relate to credit checks from lenders, but it also protects workers from unfair credit checks by their employers. Let’s look at the employer-credit-check aspect of the Fair Credit Reporting Act so you can fully know your rights. 

Fair Credit Reporting Act

The Fair Credit Reporting Act was initially put into place in 1970 by the Federal Trade Commission to regulate how people’s credit information was distributed and reviewed. Today, it protects borrowers and employees alike from unfair practices when it comes to your credit information. Here are some of your rights and protections under this act: 

  • Written Explanation: Your employer is required to notify you if their credit check in any way will influence their hiring decision. Since they really wouldn’t check your credit unless it was going to impact their decision, your employer is required to notify you in writing when they are checking your credit. 
  • Notify you of Rejection: Your employer is obligated to call you or contact you somehow if you were denied the job because of your credit. They’ll also need to give you a copy of the same report they used to make their decision. To go along with this, they also need to give you ample time once they have made their decision for you to refute their findings and object to their decision if you think they made an error. 
  • Written Permission: Similar to their explanation, your employer must also get written permission from you to conduct the credit check. Employers also may ask to see your credit continually, not just once. If this is the case, they are required to put this in writing when they ask for your permission to conduct the credit check. The only caveat for this though is that they may require a credit check for you to get the job, so if you deny them you may fall out of the hiring pool. 
  • Getting Rid of your Information: After the entire hiring process, your employer must get rid of all of the information from your credit check that is tied to you. Whether they get the job or not, your credit information is very sensitive and once they have no more use for it, they are required to get rid of it to protect you. 
  • No Access to your Score: While your credit score is a good overall measure of your overall creditworthiness, employers performing credit checks are not allowed to see it. This protects employers solely using a 3 digit number to base their decision off of. They must instead look at your credit report in detail so they can get a more well-rounded picture of you. 

State Credit Score Law Varies

While the Fair Credit Reporting Act is an overarching law that covers every state and similar to credit card law, each state is entitled to make their own rules when it comes to employer credit checks. Because of this, some states have outright banned employer credit checks while other states allow it. Unfortunately, there are plenty of exemptions and loopholes when it comes to this rule. Such exemptions include credit checks for employees that handle cash or are tasked with having access to information that is confidential for the company. Likewise, some management positions have exemptions in many states as well. 

There are currently 11 states that have some sort of regulation against employers performing credit checks on their employees or potential employers. The 11 states include, Colorado, California, Delaware, Connecticut, Illinois, Hawaii, Maryland, Nevada, Oregon, Washington, and Vermont. Along with these 11 states, New York City and Chicago are a few of the cities that include similar laws. 

If your employer informs you they are going to perform a credit check on you, check your state regulations and see what your exact rights are. There’s a chance you could avoid a credit check altogether, so make sure you are informed when the time comes!

How to Fix Employment Credit Check Issues

Is your big job interview coming up and you want to make sure your credit is good enough? Maybe your employer is going to check your credit soon and you might not have such a good score. Whatever the case, there are many ways to make your credit better so you can satisfy your employer as well as putting yourself in a position to get better loans in the future! Here are some of the best methods for increasing your credit

  • Pay Back your Debt: This may sound obvious, but paying back your loans and your lines of credit holds a much bigger impact on your credit than you may realize. To put it into perspective, while employers don’t look at your credit score, your payment history makes up 35% of your credit score. That’s how important it is when it comes to your overall credit. If you are consistently missing your payments or you are always making them late, that will be a huge red flag to your employer when they look at your credit. They will see that you are either forgetful and unreliable or you are not good enough at managing your own money to make your payments correctly. If you can’t manage your own money they likely won’t want you to manage theirs!
  • Close Some Accounts: While the amount of loan or credit accounts you have affects your credit score differently, if you have way too many accounts open, your employer will not like that. Having too many accounts open might signal to your employer that you are taking out more debt to pay off your current debt. It also might show your employer that you might be putting yourself under with too much debt. However, if you start to close off some of these accounts, it will show that you were able to successfully pay off all of your debts on some of these accounts and that you can be trusted with someone else’s money. 

Employer credit checks are more important than they might seem. It could be the difference between you getting your dream job and not! To ensure that this credit check process is done correctly and fairly, make sure you are well informed on all of your rights and that your potential employer is following these rights as well. Overall, the best way to ensure that this credit screening doesn’t hurt your chances of getting the job is by making your credit stronger. If your credit is poor, consider a credit builder loan with Possible! Download our app and get started today and get your money within minutes!

Michael Collins

Michael has a passion for writing and has since brought that passion to Possible. He enjoys reading everything there is to know about film, sports, and finance. His studies in college allow him to be on the forefront of business knowledge so he can better inform his readers.

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