Can an Employer Check Your Credit Score for Hiring?

Employers can review a job applicant’s credit report as part of the hiring process, but they cannot check your credit score directly unless you provide permission. The use of credit reports in employment decisions is governed by the Fair Credit Reporting Act (FCRA), which sets clear guidelines on when and how an employer can access this information and what steps must be followed to do so legally.

1. When Can Employers Check Your Credit Report?

Employers may request a credit report as part of a background check for certain positions, especially those involving financial responsibility or access to sensitive financial data. This includes roles like:

• Financial or accounting positions
• Jobs requiring access to company funds or confidential financial information
• Senior leadership or managerial positions, especially in industries like banking or insurance

However, credit reports are generally not used for positions that do not involve financial responsibilities or tasks that require a high level of trust regarding money management.

2. Credit Score vs. Credit Report

It’s important to distinguish between a credit score and a credit report:

• Credit Report: This document provides detailed information about your credit history, including accounts, payment history, credit inquiries, and debts. Employers may request this report to assess your financial responsibility or to ensure there are no red flags (such as a history of bankruptcies or significant unpaid debts).
• Credit Score: Your credit score is a number that summarizes your creditworthiness based on your credit report. Employers typically do not check your credit score unless they are specifically evaluating your financial standing for a position that requires it.

3. Legal Requirements for Employers to Check Your Credit

Under the Fair Credit Reporting Act (FCRA), an employer must follow these procedures if they want to use a credit report as part of the hiring process:

• Applicant’s Written Consent: Employers must obtain written consent from the job applicant before requesting a credit report. This consent is typically part of the job application or provided separately before a background check is conducted.
• Pre-Adverse Action Notice: If the employer plans to take a negative employment action based on information in the credit report (such as not hiring the applicant), they must notify the applicant of the adverse action before making the final decision. This notice gives the applicant a chance to review the report and dispute any errors or inaccuracies.
• Adverse Action Notice: If the employer decides not to hire the applicant based on the credit report, they must send an adverse action notice to inform the candidate. The notice must include the name of the credit reporting agency used, the applicant's right to dispute any errors, and how to obtain a free copy of the report.

4. What Information Is Typically Looked At?

When an employer checks a credit report, they are usually looking for:

• Payment history: Whether the applicant has a history of late payments, defaults, or collections.
• Outstanding debt: The level of debt an applicant carries, especially in relation to their income.
• Bankruptcies or foreclosures: Any past financial difficulties, such as bankruptcy filings or foreclosures.
• Credit inquiries: Recent inquiries into the applicant's credit, which might indicate financial trouble or a desire for new credit.
• Public records: Any judgments, liens, or wage garnishments that could indicate financial mismanagement.

5. States with Additional Restrictions

Some states have additional protections for job applicants regarding the use of credit reports in hiring. For example:

• California, Connecticut, Illinois, and Maryland: These states have laws that limit an employer's ability to use credit reports for hiring decisions, especially in non-financial roles.
• New York City: The city has laws that prevent employers from using credit reports for most hiring decisions, except for positions involving financial responsibilities.

Employers in these states may only check credit reports for specific positions (such as jobs that require handling large amounts of money) or must provide additional justification for using a credit report in the hiring process.

6. Can Employers Use a Credit Report to Deny Employment?

Employers are prohibited from discriminating against applicants based on their credit report unless it is directly relevant to the duties of the job. For example:

• If an applicant has significant debt, it may raise concerns about their ability to handle financial responsibilities, but this would primarily apply to positions that involve handling money or financial decision-making.
• Employers must also consider whether the credit history accurately reflects the applicant’s ability to perform the job duties. For instance, a job applicant may have had financial difficulties due to medical expenses but may still be qualified for the job they are applying for.

7. What Should You Do if an Employer Checks Your Credit?

If an employer checks your credit report as part of the hiring process:

• Review Your Credit Report: You have the right to see your credit report and verify its accuracy. It’s a good idea to review your credit before applying for jobs that might involve background checks, ensuring no errors are present.
• Dispute Any Errors: If you notice inaccuracies or outdated information, you can dispute it with the credit reporting agencies (Experian, Equifax, and TransUnion) to have it corrected.
• Explain Your Situation: If there are negative items on your credit report that may affect your job prospects (e.g., a past bankruptcy), consider explaining the situation during the interview. You can emphasize how you have taken steps to improve your financial situation.

8. Example:

Case 1: Financial Analyst Position
Jessica applies for a job as a financial analyst at a large corporation. During the interview process, the employer informs her that they will be conducting a credit report check as part of their background screening, which is common for positions that involve financial decision-making. Jessica signs a written consent form, and the company uses her credit report to assess her financial responsibility. While her report shows a past bankruptcy, she is able to explain that it was due to medical bills from an illness she recovered from, and she has since improved her financial management.

Case 2: Retail Sales Associate
Tom applies for a job as a sales associate at a retail store. The employer requests his credit report as part of the background check. However, in his state, the use of credit reports for hiring decisions is restricted unless the job involves handling money. Tom is informed that the credit report will not be considered in his hiring decision, and the employer must have a clear reason for requesting it. Since the position does not involve significant financial responsibility, the employer drops the credit check as a hiring criterion.

Conclusion:

In general, employers can check your credit report as part of the hiring process, but only with your consent and under specific conditions outlined by the Fair Credit Reporting Act (FCRA). Whether they will do so depends on the nature of the job and the employer’s policies. If you’re concerned about your credit report impacting your job prospects, it’s a good idea to review your report before applying for positions that may involve a background check and address any issues beforehand. Additionally, be aware of the laws in your state or city, as some regions have additional protections limiting how credit reports can be used in hiring decisions.