How to Handle a Credit Check During Your Job Search (2024)

You received a written job offer and perhaps even negotiated your salary and benefits. However, before finalizing your employment, your prospective employer intends to review your credit history. This step, though seemingly unrelated to your job capabilities, can be a crucial part of the hiring process.

Employers often view your credit history as a reflection of your reliability and decision-making skills, particularly for roles that involve financial responsibilities or access to sensitive information. They may use the insights from a credit check to gain a deeper understanding of your financial habits and stability before making a final hiring decision.

If this is the first time you’ve been asked for a credit check during your job search, you likely have some questions about what’s involved and how it can affect your ability to land the job.

Why Do Employers Check Your Credit Score?

Approximately 51% of employers include a credit check for employment, according to a recent survey of HR professionals. Companies do this to get additional insights into candidates and look for potential red flags.

Employers, especially those in the finance or government sectors, need to ensure their employees are trustworthy. Pre-employment credit checks are an additional method to assess this.

For example, having lots of loans or being maxed out on your credit cards could indicate to an employer that you’re disorganized or irresponsible. Likewise, having a lot of late payments on your credit history raises concerns that you might commit theft or fraud.

Employers are concerned about your ability to handle the company’s or client’s financial transactions responsibly. It’s also important to note that while some employers don’t ask for credit histories from new candidates, they may ask for credit histories from current employees if you’re promoted.

What Do Employers Look for in Credit Checks?

Employers use credit checks to gauge your ability to balance competing priorities and financial prudence. A key focus is on payment reliability. Prospective employers will assess how consistently bills and debts are paid on time.

Another aspect employers consider is debt management. They evaluate how you handle various credit obligations. High levels of debt or signs of financial stress are scrutinized, especially for roles that involve financial responsibilities.

Lastly, employers look at the overall financial behavior you’ve shown throughout your recent credit history. Patterns will either reaffirm your financial stability or raise questions about your ability for positions that require financial decision-making or access to sensitive financial data.

What Do Employers See in a Credit Check?

If a credit check is part of your pre-employment background checks, employers typically see a summary of your credit history, which includes several key financial details, but not your credit score.

Here’s what employers generally have access to:

• Available credit
• Bankruptcies
• Collection accounts
• Credit inquiries
• Debt-to-income ratio
• Employment history
• Indicators of financial mismanagement
• Payment history

However, a pre-employment credit check will not include personal information that could violate the same employment laws that limit interview questions. Questions regarding your marital status, account numbers, exact credit score, race, or birth year, for example.

Remember, the employer’s goal in conducting a credit check is typically to assess financial responsibility, especially for positions involving financial duties or handling sensitive information.

Know Your Rights

The Fair Credit Reporting Act (FCRA)gives you certain rights when an employer pulls your credit report.

Before the employer pulls the report, they must notify you in writing, and you must give the employer your written consent to perform a credit check for a job. The notice must be a separate document. In other words, asking you to consent to a credit check on the initial application would be considered invasive and unreasonable.

If the employer rejects you because of information on the credit report, they must give you a pre-adverse action disclosure. That document must include a copy of your credit report and a copy of the “Summary of Rights” from the Federal Trade Commission. Once the decision not to hire you is final, the employer must send you a second document called an adverse action notice. This explains that the employer won’t hire you and provides information on disputing information in your credit report.

Though you have the right to refuse the credit check, employers can refuse to hire you. However, some states limit how employers can use credit reports in hiring decisions, so check state laws before saying no.

How to Prepare for a Pre-Employment Credit Check

Never assume you know what’s on your credit check. Use the following steps to verify and update your credit report as a part of your job search strategy.

1. Check Your Credit Report and Credit Score

If it’s been a while since you’ve checked your credit, pull your report before starting a job search. Every consumer is allowed one free credit report every year from each of the credit bureaus: TransUnion, Equifax, and Experian. You can go to AnnualCreditReport.com (the official site for free credit reports) and pull your free reports.

2. Ask for Revisions

If you’re part of the one-third of Americans who discover an error on your credit report, you can dispute the information. Each company has a dispute process, and they have 30 days to investigate your request.

If the company decides not to change your record, you can always add a consumer statement to yours. You can include a general statement that addresses your entire credit history, or an account-specific statement.

Note that recommendations vary on the wisdom of adding statements to your credit report. Ensure you research your specific situation to decide if a consumer statement is the best choice for you.

3. Unfreeze or Unlock Your Credit

Have you frozen your credit report? It’s often a smart move to restrict access to your credit report to prevent identity theft, making it harder for fraudsters to open accounts in your name. However, a credit freeze will also restrict legitimate businesses from accessing your report, which includes your prospective employer.

To do this, contact each of the major credit bureaus. You’ll need to provide your personal identification and the PIN or password set up when you initially froze your credit.

You can choose to lift the freeze for a specific time or for a particular creditor. Keep in mind that the employer often works with a third-party background check company, so there can be variances in the business name. You can set a calendar reminder to refreeze your credit after the employer has the information they’re seeking.

4. Work to Improve Your Credit

Feel like it’s too late to work on your credit before an employer sees it? Think again. The Bureau of Labor Statistics (BLS) reports that the average time frame for unemployment is five months. This means your job search could be a bit shorter—or longer—than that.

Regardless, several months is sufficient time to make noticeable improvements on your credit report. Start by consistently paying your bills on time whenever possible. Payment history is a major factor in your credit score. Aim to reduce your debt, especially on credit cards, to lower your credit utilization ratio. Consider freelancing or taking on a side hustle to bring in a little extra income.

Additionally, avoid opening too many new credit accounts in a short period, as this can negatively impact your score. If you’re struggling to meet your financial obligations due to a recent layoff or job loss, ensure you’re communicating with lenders. You might discover that some are willing to negotiate lower payments until you’re employed again.

5. Be Proactive: Communicate With the Employer

Because the employer must provide your written notification before pulling the report, you have the opportunity to give the employer a heads-up about any negative information that may appear on your report.

Say you fell behind paying a credit card bill. You could explain that you were laid off recently or unemployed for a few years while caring for a sick relative, but you’ve worked out a payment plan with the credit card company and are now diligently making on-time payments.

Frequently Asked Questions About Pre-Employment Credit Checks

1. Can You Be Denied a Job Because of Bad Credit?

Yes. Bad credit is one of the reasons you might be denied jobs. Some states and cities do restrict this process but include exceptions for jobs with financial or confidential duties. Employers must follow a defined adverse action process before making a final decision.

2. How Do I Explain Bad Credit to My Employer?

When explaining bad credit to a hiring manager, it’s crucial to be honest, concise, and focused on the positive steps you’ve taken to address the issue. Practice ahead of time. Rehearse an elevator pitch to ensure you’re able to concisely explain the circ*mstances while redirecting the conversation to your job fit.

3. Can You Pass a Credit Check With No Credit History?

Passing a credit check with no credit history is possible, as it simply indicates an absence of credit activity. While some employers or lenders may consider this neutral, others prefer seeing a history of credit management. How this affects your employability will be determined by the individual employer.

4. How Far Back Does a Pre-Employment Credit Check Go?

It depends on the salary for the position. When conducting credit checks for positions that pay less than $75,000 annually, the information reported is restricted by the FCRA to the past seven years. This includes data on bankruptcies, liens, civil judgments, and any negative credit information. However, for jobs with salaries above this threshold, these time limitations do not apply.

5. Does the Pre-Employment Credit Check Affect My Credit Score?

Credit checks for employment are soft inquiries and don’t affect credit scores. The FCRA limits the reporting period for negative financial information, and state laws may further limit this.

Be Proactive With Your Credit

A solid credit history doesn’t just benefit your financial life, it can also be a key factor in your professional journey.

Demonstrating financial responsibility through good credit practices can positively influence your employment prospects. However, life happens and circ*mstances beyond your control can affect your credit report. Understanding what’s involved in a pre-employment credit check, how you can mitigate damaging or false information, and knowing your rights are key to ensuring your credit doesn’t dim your career prospects.