5 Important Things You Should Know About Employer Credit Checks

While the practice of checking a potential employee's credit score is hotly debated, many employers are still doing it and they're not likely to stop anytime soon. Because of this, you need to be prepared for the possibility that your credit score may play a role in whether you'll be hired or not.

If your score is particularly low or you're not proud of your financial history, you need to know what you're dealing with if you want to get hired. By knowing what to expect you'll have the best chance at getting through this part of the pre-screening and hiring process.

Below we'll tell you everything you need to know about credit checks that are performed as part of the hiring process and give you an idea of what to expect.

1. They Can't See Everything

If your credit score is less than ideal, you should know that an employer can't actually see it the way you may think they can. What they will see is your credit history.

The employer will see things in your credit history such as late payments, the amount you owe, and any credit you have available. They won't see your full report but a modified version showing some selected information.

The report they receive, of course, won't show any account numbers to potential employers or recruiters. They also won't see any soft inquiries you have on your report.

This credit report also won't include anything that might violate equal employment laws and regulations. Your birth year and marital status, for example, will be excluded from the report.

While employers can learn a lot about you from the modified credit report they receive, they won't see your credit score, and it may not infringe on your privacy as much as you had previously thought.

2. They're Checking for Red Flags

When a potential employer checks your credit score what they're doing is looking for red flags. Like it or not, your credit score can potentially say a lot about your character and what kind of worker you will be for an organization.

The main reason that employers do a credit check is that they believe, true or not, that a poor credit score or financial history may indicate that you have a reckless nature. This credit check also simply serves as an additional part of the screening process that will allow recruiters or employers to ensure they're finding the best candidate possible for a position.

Credit checks are particularly important and telling for financial positions and may demonstrate a candidates ability to perform successfully. If a person can't handle their personal finances, would you want them to handle the finances of your entire company?

On the more extreme side of things, some employers believe that a job candidate may be more prone to committing fraud if their credit and financial history are less than desirable.

3. It Won't Hurt Your Credit

When employers or recruiters request a credit report on you, they have two options. They will either get a single report, or several, directly from Equifax, Experian, or TransUnion or they may use a special credit reporting company to get a report for them.

When they request this report, however, it won't hurt your credit. When a potential employer performs a credit check on you it will always be a soft inquiry, rather than a hard inquiry. Soft inquiries and hard inquiries are very different, and while the latter can poorly impact your score, soft inquiries won't.

While actions such as applying for a new credit card will be a hard inquiry, and negatively impact your score, a soft inquiry is harmless. This can be a big concern for many candidates who don't want their credit going down just because they're looking for employment. Luckily, it won't.

4. You Have Rights

It's important to know what your rights are when it comes to credit checks. The Fair Credit Reporting Act (FCRA) ensures several things when it comes to background checks and credit reports requested by employers

Most importantly, any employer who wants to check your credit will have to notify you and get your permission first. Then, once they've checked out your score you also have some additional rights you should be aware of.

If they're making the hiring decision based partially or fully on your credit report, the employer is required to give you a notice that they may reject you.

Then, they'll have to give you an adequate chance to respond, usually 3 to 5 business days. This is meant to give you a chance to potentially discuss anything on your score with an employer or recruiter, and explain your side of the story.

After the above steps, the employer will then need to send you a final notice of a rejection. They'll also give you the name and contact information of the credit agency that was used, and notify you that you can get a copy of the report for free within 60 days.

5. You Can Be More Prepared

While employer credit checks can be stressful, the truth is that you can be more prepared for this part of the prescreening process.

First of all, you should always make sure to pay all bills and credit payments on time. You should also think carefully about credit utilization. Many experts believe that it's ideal to stay around 30% of your credit limit if you want to maintain a good score.

It can also be a good idea to sign up for a service to monitor your credit report so that you're never in the dark. Becoming more aware of your credit history and score can be one of the best ways to stay on the right track.

If you currently have a poor credit history or score, it's important that you begin taking steps to improve your credit in whatever ways that you can. If your credit score is already low, there are a few things you can do to improve it.

You might want to look into getting a credit card for bad credit, such as a secured credit card, to begin building your score back up. There are many other options for fixing a bad credit score as well, so it's important to do everything that you can to get it into better shape, especially if you're currently seeking employment or will be soon.

Final Thoughts

While it's still uncertain whether a credit score of a potential candidate can truly say something about their job performance or reliability, many employers and recruiters believe it to be the case. As a result, credit checks by potential employers will continue to be common for the foreseeable future.

Whatever you think about the process of employers checking your credit score, it pays to think about the above things carefully. By keeping the above tips in mind you'll have the best chance of minimizing the damage and getting the job despite having a less-than-ideal financial history.

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