When Employers Can Run Job Applicant Credit Reports

Credit Report
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Bad credit can do more than prevent you from getting a mortgage, car loan, or credit card. Depending on where you and live and what you do for work, a less than stellar credit history can also keep you from getting a job.

Why does good credit matter when you’re job searching? Because some employers run job applicant credit reports as part of the background check process during hiring. Especially when it comes to jobs where managing money, handling financial transactions or protecting confidential information is involved, bad credit can be an issue.

Legal Status Regarding Use of Credit Reports in Employment

The Fair Credit Reporting Act is federal legislation that regulates how consumer credit information is gathered and used, including by employers during the hiring process. The FCRA requires employers to obtain written permission from job applicants prior to running a credit report, and to inform candidates that the report may be used in hiring decisions. They must also inform candidates if they decide to pass on hiring them, based on information uncovered during the credit check.

In addition, most states allow the use of credit reports by employers. However, not every state allows employers to use credit reports however they like during the hiring process. As of this writing, 10 states, the District of Columbia, and several cities restrict how credit reports can be used during employment screening. The 10 states are: California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington.

What do these restrictions look like? For the most part, these laws prohibit the use of credit reports in employment decisions except under certain circumstances – for example, per Nolo.com, in Nevada it’s largely illegal for employers to use credit reports as part of the screening process, unless the job involves duties such as handling money, corporate credit cards, or financial accounts.

Contact your State Department of Labor for information about how current laws apply to your location.

How to Protect Your Credit Report Rights

Tripp Scott, labor and employment attorney for Catalina Avalos, supplies the following information on credit reports and tips for job seekers to protect themselves from credit checks by employers.

General Credit History Information

  • Information from credit report must be used only for purposes requested.
  • Employee has the right to know if any adverse action was taken as a result of information on the credit report; disclosure is required even if credit report information was not the main reason the applicant was turned down.
  • Disclosure does not have to be in writing, but it is a good idea for an employer to keep a record of the written notification.
  • An employer must provide the employee with the name, address, and telephone number of the consumer reporting agency -- including a toll-free telephone number established by the agency, if the agency compiles and maintains files on consumers on a nationwide basis.
  • An employer must provide a statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the consumer the specific reasons why the adverse action was taken.
  • Employees have the right to contact the credit reporting agency providing the employee's credit report and attempt to correct any negative information.
  • Employees may re-apply for the job if negative information is corrected and there were no other grounds for being denied employment.

Job Applicant Credit Report Tips

  • Have an accurate and truthful resume.
  • Familiarize yourself with the information contained in your credit report.
  • Determine if there is any negative information in your credit report.
  • Attempt to correct the negative information in your credit report prior to seeking employment. Correcting negative entries can be time-consuming and frustrating.
  • If an employer informs you that they will conduct a credit check, be prepared to decide between withdrawing your application for employment or pursuing the job.
  • If you are denied employment based on information on the credit report, speak to the employer to see if you may re-apply.

Credit Discrimination Issues

  • Credit history checks may have the potential of having a disparate impact on minorities.
  • The Equal Employment Opportunity Commission (EEOC) can scrutinize employers, using credit history checks to disqualify prospective employees, in order to determine if the employer's practice is a facially neutral practice linked to job-related criteria and/or is a business necessity.

Liability for the Employer

  • An employer who unlawfully uses information from an employee's credit report may be subject to criminal penalties.
  • An employer may also have exposure to civil penalties and be liable for attorney's fees.