Will Bad Credit Affect My Employment Opportunities?

You probably already know that your credit history plays an important role in obtaining credit cards and loans. But, did you know that some employers take a look at your credit, too? According to a survey from HR.com, approximately 31% of employers use credit checks for some candidates and 16% use them for all who are applying for a job within their company. If your credit history is less than stellar, you may be wondering, “Can bad credit impact my employment opportunities?” The short answer is “yes” but keep reading to learn more about your rights and how employers use your credit information.

Can a Prospective Employer Check My Credit?

Yes, but not without your written permission. Once you give a prospective employer your blessing, they’ll be able to see certain details on your report but not your overall score. In general, the report will contain information regarding your payment history, account balances, and bankruptcy or foreclosure information. It will not disclose any account numbers or information prohibited by equal employment opportunity regulations. Additionally, other personal information, excluding your Social Security number (SSN), will be obscured.

If you’re worried that an employer pulling a report will negatively impact your credit, don’t. These credit checks are soft inquiries and won’t affect your score.

Why Do Employers Look at Credit Reports?

Many employers use the information in credit reports to help weed out potential candidates, especially if the position involves financial information or requires a higher security clearance. Some of the things employers look for in a report include:

• Financial responsibility. Are you good at managing your money? If you have late accounts or a high debt ratio, this could signal that you aren’t suitable to handle other people’s money or have little self-discipline.
• Decision-making skills. If you have several maxed-out credit cards or overall bad credit, this could indicate that your decision-making skills are questionable.
• Reliability. Many employers equate a poor credit history to a potentially poor employee. They worry that a record of late or missed payments could indicate a pattern, suggesting you could be an unreliable employee.

Additionally, if your credit report indicates that you are carrying a high debt load, employers may worry about potential theft or fraud, especially if you will have access to financial accounts.

Your Employee Rights

When applying for a job, you do have rights when it comes to your credit report. Employers must follow the rules under the Fair Credit Reporting Act (FCRA), including:

1. Getting your permission to check your credit. If an employer wants to pull a credit report as part of a background check, they must explain why and how the information will be used. This must be presented in a separate document from the application and your signature is required for them to pull the report. Be sure to ask if this is a one-time request or if additional reports may be pulled once you are hired. In some states, employers are also required to give you a copy of the report.
2. Letting you know that your credit was the reason you weren’t hired. Employers who rely on the information in your credit report to disqualify you as a candidate must share the credit report with you. Additionally, they must provide a copy of your FCRA rights.
3. Providing an opportunity for you to dispute the information on the report. Once you’ve been denied employment due to your credit report, you have the right to review and dispute any information that was used in the decision.

If your credit report contains incorrect information that prevented you from getting hired, you should also file a dispute with the three major credit bureaus (Experian, Equifax, and TransUnion). This will help prevent future complications when applying for jobs or credit.

States That Prohibit Hiring Based on Credit

Each state has its own rules regarding the use of credit reports in the hiring process. Although many allow employers to deny you a position based solely on your credit, the following states prohibit it:

• California
• Colorado
• Connecticut
• Delaware (excludes private employers)
• District of Columbia
• Hawaii
• Illinois
• Maryland
• Nevada
• Oregon
• Vermont
• Washington

Certain cities, such as New York City and Chicago, also prohibit employers from doing any credit checks at all. Most states, however, do offer exceptions for employers in financial services or law enforcement. The city of Philadelphia is an exception to this rule. In 2021, it added law enforcement agencies and financial institutions to its list of employers prohibited from using credit-related information when making employment decisions.

Next Steps

If you are currently seeking employment or considering a career change, now is the time to review your credit report. Make sure to request one from each of the main credit bureaus and thoroughly look them over for accuracy. If you find any erroneous information, be proactive and file a dispute. You should also be ready to explain any items that may make an employer hesitant to hire you. Be transparent and honest. Most employers will appreciate it and it could keep you in the running for your dream job!

If you are worried about your credit and need help, contact CreditSolver.com. We offer a free credit consultation, as well as affordable monthly credit coaching services.