A CareerBuilder survey found that 72 percent of employers conduct background checks on the employees they hire and, of those, 29 percent check credit reports. An applicant’s credit history is seen by many as a valid indicator of how well they’d perform their job, especially when it comes to a position related to money. Even more, credit checks help employers verify an employee’s identity and the information they’ve provided on a job application. If you’re actively applying for jobs, read on to find out what employers are looking for when they conduct pre-employment credit checks, what they’re able to see and how to be prepared.
Jobs Most Likely to Require Credit Checks
Credit checks are most common for jobs that involve access to money or handling consumer data, such as positions in banking, accounting and investing. Employers might also conduct a credit check for employees who regularly work with cash, like store clerks. According to David Sawyer, president of the background screening company Safer Places Inc., it’s rare for an employee to be turned down based on their credit report, but it is possible if that person is applying for a chief financial officer position and has bad credit.
What Employers Look for in a Credit Check
Employers are looking for many things when they run a credit check for employment, but your credit score isn’t one of them. An employment credit report will include identifying information as well as your financial history, including how much debt you have and your payment history on that debt. An employer will look for a number of red flags in your credit report:
- Late payments, which would indicate your lack of organization and inability to adhere to agreements
- Excessive debt, which may be viewed as a greater likelihood of committing fraud or theft
- Financial distress and mishandling, which could indicate a poor fit for a job that requires financial responsibility
Employers want to be confident that you have solid decision-making abilities and are skilled in handling your own finances. This gives them peace of mind that you’ll use those same abilities when handling their high-stakes projects. Jeff White, financial analyst and staff writer for Fit Small Business, a site that provides financial advice to small businesses, explains: “Generally, employers want to look at your credit as a safety measure, and as proof that they tried to find out as much as possible about your background before they hired you.”
Credit Checks Do Not Hurt Your Score
Although employers will not be able to see your credit score in the report, you may still worry about how your score will be affected as a result of them checking. According to one of the consumer credit reporting companies, a request for your credit report for employment purposes generates what is called a soft inquiry. Soft inquiries do not affect your credit scores.
What to Know About Your Rights
While most states allow employers to run credit checks as part of the hiring process, some places have regulated the use of credit reports and placed restrictions on how the collected information can be used. These states include California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington. Similarly, some localities also have restrictions and prohibitions on employee credit checks, such as New York City, which prohibits credit checks for most job applicants. Check with your state’s labor department to find out if you are covered by such laws.
How to Prepare for a Pre-Employment Credit Check
You should always keep your credit report in shape by paying bills on time and avoiding late fees, using your available credit lightly, and taking advantage of credit reports to stay on top of your financial health. Using a tool like ScoreMaster can help significantly by allowing you to see the impact of spending on your credit score and devising a personalized plan to achieve a strong financial standing overall. Not only does ScoreMaster’s gamified dashboard empower you with steps you can take to achieve your best credit score in 20 days, but it also helps you stay organized and updated by reminding you of payment due dates, suspicious activity, and money & credit monitoring events.
In the end, if you know your credit check will turn up some unfavorable moments in your financial history, consider bringing it up with your potential employer first — your honesty may win you big points. While you may not be able to fix everything in your financial past, ScoreMaster can help you make lasting changes for a more-promising future. Learn more about how ScoreMaster can make a difference in your credit report.
*Legal Disclaimer – ScoreMaster is a patent-pending educational feature simulating credit utilization’s effect on credit scores via payments or spending. Your results may vary and are not guaranteed.