What Is an Employment Credit Check?
Definition & Examples of an Employment Credit Check
An employment credit check takes place when a potential employer checks your credit history to see how you've handled consumer debt. Employers obtain this report from third-party companies.
Learn more about employment credit checks and how to prepare for them.
What Is an Employment Credit Check?
In addition to employment history and criminal background checks, some employers also run credit checks on applicants and use that information to make hiring decisions. A National Association of Professional Background Screeners (NAPBS) survey reports that 31% of employers ran credit checks on some applicants, and 16% checked all applicants' credit. Most background screenings occurred after a conditional job offer.
Most often, employers check the credit of those applying for jobs that deal with money. For example, positions in banking, accounting, and investing often require credit checks.
How Employment Credit Checks Work
Once you've been offered a job (or sometimes a promotion), the employer will request a credit check from a third-party company. An employment credit report includes identifying information, such as your name, address, previous names and addresses, and Social Security number.
It also shows the debt you have incurred, including credit card debt, mortgage and car payments, student and other loans, and your payment history of those debts and loans, including late payments.
However, there is certain information that isn't included in an employment credit report, like your date of birth. This information is excluded because it could be used to discriminate against candidates due to age. It also doesn't include your credit score.
Federal Employment Credit Check Laws
The Fair Credit Reporting Act (FCRA) is federal legislation that sets the standards for employment screenings, including credit checks.
Under the FCRA, here are some things employers must do (or must not do) when conducting a credit check on a potential or current employee:
- The employer must get your written approval: Before an employer conducts a credit check on you, the company must notify you in writing and get your written authorization. If you don't consent to the credit check, the employer might go forward with the interview process, but they may also reject your application on the spot.
- The report can’t include old information: Generally, the credit report cannot include negative information that is seven or more years old. It also cannot include bankruptcies that are more than 10 years old.
- There are laws regarding bankruptcy information: According to the FCRA, you cannot be discriminated against solely because you filed for bankruptcy. However, bankruptcies are public record, so it is easy for employers to obtain the information.
- You must be told if the report is used against you: If the employer doesn't hire you because of the report, the company must inform you. The employer also must give you the contact information for the third-party agency used to get your credit report.
- You can see what is in the report: You have a right to receive a copy of your credit report for free. You also are entitled to a free report any time it is used against you by an employer.
- You can dispute the information: If the data in the report is inaccurate, you can dispute the findings.
The Equal Employment Opportunity Commission (EEOC) oversees how employers can use information from credit checks. Employers are prohibited from illegally discriminating when using financial information to make employment decisions. For example, an employer can't use one standard for female candidates and a different standard for male candidates.
If you suspect that an employer has used credit checks to negatively impact candidates because of race, ethnicity, disability, age, or gender, you can report the organization to the EEOC.
State and Local Employment Credit Check Laws
Most states allow employers to utilize credit reports in a fair and equitable manner within the hiring process. However, some locations have regulated the use of credit reports and placed restrictions on how the information can be used. California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, Washington, and the District of Columbia have statutes on the books limiting the use of credit reports.
In these states, the use of credit checks is restricted to specified occupations or situations where financial transactions or confidential information are involved. Many other states have legislation pending that might prohibit the use of credit reports by employers, or place restrictions on their use.
In addition, some localities also have restrictions and prohibitions on job applicant credit checks. For example, New York City prohibits credit checks on most job applicants. Exceptions include police officers and executive-level candidates with fiduciary responsibilities. Chicago and Philadelphia also restrict the use of employment credit checks.
Due to COVID-19, you can access your credit reports for free from Equifax, Experian, and TransUnion once per week through April 2021.
Requirements for Employment Credit Checks
The best way to prepare for a credit check is to get a copy of your credit report as soon as possible. You are legally entitled to one free copy of your credit report every year from each of the three nationwide credit reporting companies. This way, you can check for any issues or errors and dispute them before an employer sees them.
You can also add a brief statement of dispute to your credit report to explain why an issue occurred. For example, you might explain that you were late on a car payment due to an emergency medical issue.
Since the employer needs your written permission to run a credit check, you'll know whether you need to address any issues. Prepare a brief explanation of potential issues the employer might see and explain what you've done to rectify the situation.
Employers do understand that applicants experience financial challenges like unemployment, so past credit issues don't necessarily mean you won't be hired.
- An employment credit check is when a potential employer checks your credit history to see how you've handled consumer debt.
- The credit check includes your credit history and personal information like your name and address.
- The FCRA sets standards for employment credit checks. The EEOC oversees how credit information can be used in hiring decisions.
- States and cities may have stricter laws regarding employer credit checks.
- If possible, obtain copies of your credit reports and correct errors before you apply for jobs.
National Association of Professional Background Screeners. "How Human Resource Professionals View the Use and Effectiveness of Background Screening Methods," Pages 7, 10. Accessed June 27, 2020.
U.S. News and World Report. "How Employment Credit Checks Work." Accessed June 27, 2020.
Experian. "Employment Insight." Accessed June 27, 2020.
Federal Trade Commission. "A Summary of Your Rights Under the Fair Credit Reporting Act," Pages 1-2. Accessed June 27, 2020.
Equal Employment Opportunity Commission. "Pre-Employment Inquiries and Financial Information." Accessed June 27, 2020.
SHRM. "House Committee Passes Bill to Ban Employment Credit Checks." Accessed June 27, 2020.
The District of Columbia. "Fair Credit in Employment Amendment Act of 2016," Page 1. Accessed June 27, 2020.
Nolo. "Can Prospective Employers Check Your Credit Report?" Accessed June 27, 2020.
NYC Human Rights. "Credit Check Law: For Employees." Accessed June 27, 2020.