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Yes, Your Credit History Can Affect Your Employment Options - Here’s How

January 04, 2019

If you've ever applied for a job, you know there are a lot of hoops to jump through. From a kick ass cover letter to a stand-out resume, engaging interview and strong references, potential employers often consider a variety of information before offering you a position.

Beyond the standard job application requirements, there's one other way some companies use to get insight into your character: an employment credit check.


What is an Employment Credit Check?

An employment credit check is when a company looks at your credit history to glean information about you, including if you have any serious financial stresses that might make you more of a risk for fraud or theft.

It's understandable that an employer would want to get a comprehensive read on a potential new hire's background - in fact, according to a survey by CareerBuilder, nearly 75 percent of employers say they have hired the wrong person. That's a costly mistake, considering the average expense related to one bad hire was almost $17,000.

Before you panic about having your credit checked by a potential employer, here are a few things to keep in mind.

While most companies conduct background checks of some kind (i.e. criminal, current or past employment), only 29 percent told CareerBuilder that they typically conduct employment credit checks. In order to do an employment credit check, a potential employer has to first get written permission from you. This is enforced by the Fair Credit Reporting Act, which states that the notice must be "clear and conspicuous."

Employers look at a truncated version of your credit report, not your credit score. This is considered a "soft pull" and doesn't impact your credit score (vs. applying for a credit card, which does). This means they also won't see things like account numbers, whether you're single or married, and other private information.

States where credit checks are illegal or restricted include: California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington.

How Bad Credit Affects Employment

Like lenders who look at your credit report for red flags that may indicate what kind of risk you are, employers are also looking for signs that you might not be the best person for the job.

For example, if you pay your bills late all the time, it indicates that you're not good at managing important deadlines and aren't particularly organized... or responsible. Ditto if you have used up most of your available credit or are in a significant amount of debt, which may also signal that you're a risk in terms of illegal activities, such as financial or identity theft. And bankruptcies, liens and other severe black marks on your credit history take that all up to the next level.

If the reason you're being rejected for a certain position is partially or fully because of your credit history, the company by law has to do a few things.

  • They must send you a "pre-adverse action notice," including a copy of the report used. The pre-adverse action notices also must include a summary of your rights.

  • They should give you a fair amount of time to respond (normally three to five business days) before moving forward, so you can either explain the issues on your report or fix any erroneous information.

  • After the fact, if you're not hired on the basis of information on your credit report, the company must provide you with a post-adverse action notice, which includes name of the credit report agency and its contact information. It also must notify you of your right to get a free copy of the report within 60 days.


What Kinds of Employers Typically Run Credit Checks?

As a rule of thumb, the types of companies that are more likely to run credit checks on prospective employees are those that deal with sensitive issues, like access to money, private data or confidential corporate information. Any job that requires a security clearance may also be more likely to involve an employment credit check.

As Wendy Powell, author of Management Experience Acquired told CNN, "Certain categories of employers regularly review credit histories [such as] banks, brokerage houses, government and other financial institutions. Evaluation of credit history is [also] frequently applied to accounting and money management positions where there is potential for fraud and embezzlement."

She went on to add, "Employers have a responsibility to assure that the proper due diligence is applied. Be prepared for the possibility of a credit review, not only in the application process, but also throughout the employment relationship."


Want to Get Hired for the Job of Your Dreams? Take These Steps:

If you're gearing up for a job search, it's in your best interest to do all you can to make sure your credit history is as positive as possible.

Here are three important steps you can take immediately, especially if your credit history has some issues and may possibly affect your employment chances:

1. Check your credit report.

Everyone is entitled to a free annual free credit report from each of the top three credit bureaus (Equifax, Experian and TransUnion). Check them all, because information may vary, and potential employers may pull a report from just one bureau.

2. Correct errors on your credit report.

Mistakes happen, and the Fair Credit Reporting Act is once again on your side: you have the legal right to fight mistakes on your credit report. Take steps to get any errors corrected ASAP.

3. Be transparent and proactive.

Nobody's perfect, so if you know a potential employer is going to check your credit AND you're concerned that smudges on your credit history will affect your chances at employment, let them know. Chances are you're not the only candidate with credit issues, but you might just be the only one honest and forthcoming enough to offer an explanation.


Credit can certainly affect your employment opportunities, so make sure your credit history works for you. Fire bad habits like paying bills late, overusing your credit and opening too many accounts at once, and you'll have a much better chance at getting hired.