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!
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.
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!
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.
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.
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:
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!
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.
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!