You are accustomed to your credit being important in many areas of your life, whether you’re applying for a new loan or renewing your auto insurance policy. But what you might not realize is that your credit report can also come into play in the workplace.
If your credit history is less-than-desirable, it could even cause problems for you within your career. Not only can it potentially cost you a new job for which you’re applying, but it could also be taken into account before you’re offered a new promotion or added responsibility within your role.
So, what exactly are the details surrounding employer credit checks and why on earth would they need to pull one in the first place?
Employers Need Your Permission First
First and foremost, it’s important to note that employers – current or potential – will need your permission prior to running your credit. This permission will typically be requested as part of the application process or as a component of your initial employment paperwork. However, the company will need to have it before they can pull your credit.
You always have the right to deny permission. However, depending on the company you work for (or are applying to work for), and your role there, denying access to your credit might impact your employment. If you are applying for a competitive position and refuse your potential employer permission to access your credit score, it might make another applicant look more desirable.
Not Every State Allows It
Some states prohibit potential employers from running your credit prior to making a hiring decision. Other states may allow it, but their rights are restricted to specific aspects of your credit report, or they are limited in what they can do with the information they get,
There are 11 states that have restrictions of some kind on the credit report-pulling rights that employers have, though the exact limits vary by state. They are California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington. If you live in a state outside of that list, though, there aren’t restrictions on employers accessing your credit report in regards to your employment ( at least, not at-present).
What They Will See
When an employer, or potential employer, pulls your credit report, they won’t see everything. The view that you see when you pull your own report is much more comprehensive.
First off, you should note that employers’ requests are considered soft pulls. This means that your report won’t be dinged with a hard inquiry – as it would if you were applying for a credit card or loan.
Instead, this soft pull gives them an abbreviated report that doesn’t impact your credit report or score. It will not show your age or marital status, but it will show your payment history, credit utilization, and a general history of how you’ve managed your accounts.
The employer also won’t be able to see your actual credit score, no matter which bureau they request the soft pull from.
Why They May Check
While only 29% of employers say that they do so, there are many reasons that an employer would want to run a credit check on you. This is true whether you already work there or are simply applying for a new position within the company.
They may want to use your credit to verify your identity. This is especially the case if you are applying for a position that prefers, or requires, a security clearance.
Employers can also use your credit report to get an idea of how responsible you are. For example, significant levels of debt and high account balances could signal financial trouble. Someone struggling financially could be seen as an increased risk of theft, and might not be worth risking the new hire.
Credit checks can also be used to decide if you’re responsible enough for a leading role within the company, especially if it’s financial in nature. If you are struggling to manage your own finances, you might not be seen as the right guy for the job managing a multi-million-dollar-company’s finances.
Why It’s a Problem
Employers who check applicants’ (and employees’) credit believe that there’s merit in doing so. However, as the person whose credit report is being analyzed, you might not agree.
Having an employer run your credit check could be a problem, simply because they are only getting a snapshot view of your finances. Yet, they can use that snapshot to determine whether or not you’re right for a role.
You may not even have the opportunity to explain that your high credit card balances are due to a child’s unexpected medical bills. Or maybe those late payments last year were in the middle of your divorce, and you’ve since gotten a handle on everything on your own.
Employers are required by law to notify you if your credit report is their deciding factor, and impacts the decision negatively. So, if you lose out on a job to another candidate exclusively because of your credit, they have to let you know and also provide you with a copy of the credit report they received.
However, even if your credit isn’t the deciding factor, it can still be taken into account when comparing you to another qualified candidate. Because of this, you could still lose a role for which you’re competing, thanks to the info that’s in that soft pull.
Because of this, it’s important to clean up your credit report as much as possible before you being a new job search. Checking for and disputing errors on your reports, lowering credit card balances, and even increasing limits can all help tidy up your credit.
There are also some great “quick fixes” you can implement that make your credit report look even better right away. This is especially important if you’re applying for roles where your credit might come into question throughout the process.