Why Do Employers Check Your Credit?

Some employers run a credit check before hiring to help limit risk. Here’s what they check, your legal rights, and how to keep your credit in good standing.

Why do you need a credit check for work? To help limit employer risk

First, it’s important to understand that all kinds of employee background checks, including credit checks, have a common purpose: to help screen out unqualified applicants. Reviewing credit reports is one way employers perform due diligence when screening applications and is an important part of helping ensure that only qualified candidates make it through.

While a credit report by itself doesn’t prove anything, employers often look for certain patterns of behavior, such as:

• Money management. Employers are more likely to check the credit of applicants for jobs that involve money, such as accounting or retail clerk. Employers may believe that a good history of money management indicates that the applicant will also be able to manage the company’s finances well. Of course, employers can also see the opposite. Poor personal financial management can be a warning sign that money management may be a problem for a future employer.
• Reliability. Some employers may use a credit check to determine an applicant’s ability to handle money responsibly, which can give them an overall picture of an applicant’s reliability.

Credit reports may be used as part of a background check for security clearances. All government employees who work with classified information or systems are required to obtain such a clearance.

In addition to checking a job applicant’s financial history, some employers use credit reports to verify information provided elsewhere. For example, credit reports also include your previous employers, so they can be used to confirm your work history or reveal unknown gaps in employment. Credit reports can be used to verify your identity, among other things, because they include your Social Security number.

Employer credit check shows limited credit report

Whatever the employer’s motivation for running a credit check, they can’t see all the information. Here’s some of the information they can see :

• Information that identifies you <br />This may include your name, previous names or aliases, your Social Security number, and your most recent address.
• Credit Accounts and Payment History
• Your credit utilization ratio
  Your outstanding debt is a percentage of your available credit limit.
• Certain public records
  This could include any bankruptcy event within the past seven to ten years.

However, employers cannot see other information, including: 2

• Your credit score
  Although employers will see a lot of credit data about you, they won’t see your credit score.
• Your date of birth
  To help protect job applicants from age discrimination, your year of birth is omitted from the credit reports that employers see.
• account number
• income
• marital status
• Information related to medical expenses (even if not yet paid)

Credit Reporting Rights for Job Applicants

The practice of using credit reports for employment background checks is far from widespread, partly because some employers do not believe credit reports are relevant to job performance and partly because they worry about the fairness of credit reports. Currently, some states and cities have laws that restrict or prohibit the use of credit checks for employment purposes.

In addition, there are various laws that protect the rights of job seekers. If you are looking for a job, it may be helpful to know the following information:

• Employers must get your written permission to pull your credit report.
• If your employer rejects you based on the information in the report, they must warn you and provide you with a copy of the report.
• If your employer does not hire you because of your report, they must give you a formal adverse action notice .

Be proactive to help improve your credit report

Because your credit report is so important to your job search, it’s important to be proactive about getting a good credit report. The following practices can help:

• Pay your bills on time.
• Use a reasonable amount of available credit.
• Limit new credit applications.

Consider maintaining a variety of different credit accounts, such as credit cards and loans.

Finally, if you plan on looking for a job, it’s a good idea to get copies of your credit report from all three national credit bureaus so you know exactly what’s on it. You don’t want a potential employer to have unexpected surprises. If there’s an error on your report, you’ll need time to correct it.

Did you know that as an added security measure and to prevent fraud, American Express reports a reference number, rather than your actual account number, to credit bureaus?

Despite some concerns about whether the data on a credit report is relevant, credit reports are still a common component of pre-employment background checks. You can try to make your report an asset by maintaining a positive credit profile.

Allan Halcrow is a freelance writer specializing in business, HR, and diversity and inclusion. He is also the author of four management books.

All Credit Intel content is written by freelance writers and is commissioned and paid for by American Express.