One of the rising trends in employment is the reality that you might need to agree to a credit check as part of your employee background check. If you are out on the job hunt, here is what you need to know about credit checks and your employer:

Credit Report

Bad Credit can be a Red Flag

First of all, understand that your poor credit can be a red flag to some employers. If you have a bankruptcy on your record, or if it looks as though you are struggling, some employers might worry that you could be vulnerable to bribes or to embezzling. This is especially true if you are applying for a security position or if you will be handling confidential corporate information. In some cases, employers like to know that the people they hire for positions dealing with money are, themselves, in a stable position.

While not every job requires a credit check, be aware that some positions come with this requirement. Poor credit can be a red flag, and you need to be prepared to explain it. (Maybe your credit problems stem from issues related to medical problems, divorce or some other unexpected and uncontrollable situation).

Employers Aren’t Supposed to Look at Your Credit Score

Even though some employers might run a credit check as part of the background check, it’s important to realize that they shouldn’t be looking at your credit score. Instead, credit reporting agencies provide specially sanitized versions of your credit report that include such items as public record and collection information, as well as identifying information and credit accounts.

However, as you can tell, even without a credit score, a look at your credit history can be telling. If your credit report contains information about a collections account, that could be a big enough red flag to cause a problem.

It’s a good idea to look at your own credit report before you start the job search. You can use to request a free credit report from each of the three major bureaus once a year. Consumer credit sites like Quizzle¬†and Credit Karma also provide you with a way to see a top-level view of your credit situation for free.

Looking at your report, though, can give you a good idea of whether or not there might be issues. Check for inaccuracies that should be fixed, and also look for signs of fraud. You don’t want to be passed over for a job because someone else is wreaking havoc with your good name.

Check State and Local Government Laws About Credit and Hiring

Laws governing employer use of credit checks during hiring vary by state — and even by municipality. Some cities don’t allow employers to perform credit checks as part of their hiring process. Others might have specific rules about the types of positions that are involved. So, it might be ok for the employer to run a credit check for a high security position, but not for an entry-level secretary position.

There are states that also have laws against using credit checks in hiring as well. These states restrict the use of credit checks, since it can be difficult to improve a situation if you don’t have employment. Make sure you understand the law in your state or the regulations in your town before you start looking for a job so that you know when it’s ok to skip the credit check.

Bottom Line

Employer’s aren’t supposed to check your credit without written permission from you. If you haven’t given your permission, they aren’t supposed to pull your credit. Of course, this creates its own problems¬†since an employer might assume you have something to hide if you aren’t willing to submit.

Before you get too far into the job search, make sure that you understand the laws and regulations related to credit checks. Also, make it a point to double-check your credit before getting started. You want to clear up any nasty surprises before you find yourself facing the decision to provide permission for an employer credit check.



Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.