Why Employers Check Your Credit Score and What They Can See
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Applying for a new job means perfecting your CV, writing a cover letter and preparing for an interview. But there’s something else you should work on before submitting your next application: your credit.
According to a HR.com Report 2018 sponsored by the National Association of Background Screeners (NABS), 95% of companies perform some sort of background check on potential employees – 16% pull credit or financial checks on all job applicants and nearly a third perform credit checks on certain applicants.
Although your next employer can view your credit history, unlike lenders, they cannot see your credit score (or your credit account numbers). It is one of the most common myths about credit scores. But it’s worth knowing what employers can see when they do a credit check.
First, let’s break down the difference between your credit report and your credit score.
Your credit report details your credit history, including any credit card account information, your balances, available credit, and payment history. Your credit score is a 3-digit number that basically summarizes this information in a score. A good credit score means you have good credit risk (more likely to repay a loan), while a low credit score means you have low credit risk.
More than half of employers conduct background checks only during the hiring process, and the #1 reason (at 86%) is to protect their employees and clients, according to HR.com’s 2018 report.
For security purposes, the credit report may be used to verify a person’s identity, background, and education, to prevent theft or embezzlement, and to see the candidate’s previous employers (especially s lack of professional experience on a CV). For employers, it is an overview of how a potential candidate handles their responsibilities.
“Credit reports show whether or not you’re liable,” said financial expert John Ulzheimer, a former FICO and Equifax employee. CNBC Select. “And, they also indicate whether you are in financial difficulty. These are attributes that are important to employers. For example, would you hire someone in your accounting department who cannot handle their own obligations?”
If an employer does a credit check on you, it’s probably only after they’ve made the decision to hire you, and it’s usually the last thing they check. Since credit checks cost employers time and money (many outsource to a third party company), credit checks are not necessarily used to screen out large numbers of potential applicants and not all applicants will not have their credit checked.
Employers are more likely to perform a credit check for candidates applying for financial positions within a company or any position that requires money management (such as accountants or retail positions).
“They largely see what a lender sees, except for your credit score,” Ulzheimer says. (Employers also don’t see your date of birth.)
Because much of the credit report data that lenders and employers see is the same, employers have access to a comprehensive background report that includes, in addition to your credit history, employment, insurance and your previous legal activities.
Although potential employers don’t see your credit score during a credit check, they do see your open lines of credit (such as mortgages), outstanding balances, car or student loans, foreclosures, late or missed, bankruptcies and collection accounts.
Your credit score will not be affected by a potential employer performing a credit check.
“An employment survey is treated as a soft survey,” says Ulzheimer. “Not visible to other parties (other than you) and not reflected in credit scoring systems.”
According to the 2018 HR.com report, employers typically assess applicants based on their long-term credit history — four to seven years in total — unlike lenders. This means that if there is a significant deviation from a few years ago, an employer may still ask you about it even if your most recent credit history is clean.
Thanks to Fair Credit Reporting Act (FCRA), employers cannot check your credit history behind your back. They must have written consent before pulling an applicant’s credit history.
“Unlike all other credit report scenarios, you must receive separate notice that the employer is going to pull your credit reports,” Ulzheimer says. “And you must give overt written permission.”
In some states, there are specific restrictions when it comes to employers using credit information for employment decisions.
Since employers primarily check for trends or bad money management habits when they do a credit check, the best way to prepare is to know what your credit report says before applying for a job. (regardless of position).
“You definitely don’t want to be surprised when you go to apply for a job only to learn that something negative is on your credit reports,” Ulzheimer says. “I always advise job seekers to get a good idea of what your credit reports look like well in advance. And to be able to explain any negative entries.”
Each year, you are entitled to one free credit report from each of the major credit bureaus — Experian, Equifax and Trans Union. You can access these reports for free at annualcreditreport.com, which is permitted by federal law. We recommend that you do not access all three reports at the same time, but rather space out one report every four months.
If you have a Capital One credit card, such as the Capital One Venture Rewards Credit Card Where Capital One Savor Cash Rewards Credit Cardyou may have come across CreditWise (which is open to everyone, even if you’re not a Capital One cardholder). CreditWise provides access to your free TransUnion credit report.
Keep in mind that while employers can legally remove your credit report, it’s one of many factors that go into getting hired for a new job. But there’s an easy way to show up on your credit report as well as your job interview: make sure you always pay your bills on time.
Information about the Capital One Venture Rewards Credit Card and Capital One Savor Cash Rewards Credit Card was independently collected by Select and was not reviewed or provided by the card issuer prior to publication.
Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.