Editorial Policy

When employers want to see your credit

Allie Johnson

April 17, 2014

If you're hunting for a job, you're busy polishing your resume, buying a new suit and brushing up on interview skills.

But there's one more thing you need to think about: your credit.

A survey from the Society for Human Resource Management shows that just under half of employers conduct credit checks when hiring for at least some positions.

“It has to do with the misconception that somebody who has poor credit is likely to steal from an employer or might not be an honest person or responsible on the job,” says Amy Traub, senior policy analyst with Demos, a non-profit public policy organization that published the report “Discredited: How Employment Credit Checks Keep Qualified Workers Out of a Job.”

However, credit checks help employers protect not only their own finances, but the money and sensitive information of their customers, says Elizabeth Bille, vice president and general counsel for the Society for Human Resource Management.

Positions for which employers ask candidates to submit to credit checks often include high-level jobs related to finance, such as insurance salesperson or mortgage broker, Traub says. But, she adds, they also can include jobs such as dog walker, delivery driver and frozen yogurt server.

Depending on where you live and what job you're applying for, you might be protected from a pre-employment credit check. So far, 10 states have passed laws to restrict the practice, and more could follow suit, according to Heather Morton, a legislative analyst who tracks these laws for the National Conference of State Legislatures.

However, even in those states, there are exemptions for jobs that require access to sensitive financial information, she says.

Credit checks and jobs: the basics

Credit checks are becoming less common but many employers still use them — especially larger ones, according to a 2012 survey by the Society for Human Resource Management.

The survey found that 47 percent of employers conduct credit checks for some or all positions, down from 60 percent in 2010.

Organizations with more than 2,500 employees were more likely to conduct credit checks on at least some prospective hires than employers with fewer than 500 employees, according to the report.

According to the association, the top three reasons employers look at the credit histories of prospective hires are:

  • To prevent theft, embezzlement or other criminal activity
  • To avoid legal liability for negligent hiring
  • To gauge overall trustworthiness

Credit checks can reveal if a prospective employee is living beyond his or her means or is having financial difficulties, two common red flags that suggest someone might commit fraud, according to a survey by the Association of Certified Fraud Examiners, Bille says.

“Going to a credit report can help identify folks as potential risks,” Bille says.

But credit checks in hiring can prevent qualified candidates who might have credit problems due to unemployment or medical bills from getting jobs that would help them get back on their feet, Traub says.

“It can really be a Catch-22,” Traub says. “People can't get out of debt because they don't have work, yet they can't get a job because they're in debt.”

But shaky credit doesn't necessarily mean you'd get turned down for a job, according to the survey from human resources society. About 80 percent of employers surveyed told the association they have hired a candidate who had negative information on his or her credit report.

“Having something negative on your credit report is not necessarily a bar to employment at all,” Bille says.

The state of pre-employment credit checks

Where you live plays a big role in whether you are asked to submit to a credit check during a job hunt, Morton says.

The 10 states that have passed laws limiting the use of credit information in employment are: California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington. Nineteen more states and the District of Columbia have bills pending that, if passed, would add them to that list, Morton says.

State lawmakers began to zero in on the practice of using credit checks in employment at the height of the recession, Morton says. They were concerned that consumers who had their credit dinged by job loss might then face additional problems when trying to get back into the workforce, she says.

What can you do about a pre-employment credit check?

If you're looking for a job and worried about your less-than-perfect credit being used against you, what can you do? Here are some tips:

  1. Learn your state law. It's a good idea to find out if your state has restrictions on credit checks in employment, Traub says. You can check the website of the National Conference of State Legislatures for specifics.
  1. Check your credit first. Go to AnnualCreditReport.com to look at your credit report before an employer does, Traub recommends. Every U.S. consumer can go to the site to get a free copy of his or her report from each of the three major credit bureaus once a year. If you spot mistakes, get them corrected immediately, Traub recommends.
  1. Know your rights. An employer must have you sign a consent form, Bille says. Most employers won't conduct a credit check until you've passed a milestone or two in the job application process. About 58 percent of employers wait to do a credit check until after they make a contingent job offer to a candidate, according to the human resources society report. And 33 percent wait until after a job interview, while only 2 percent check credit before the initial interview.
  1. Prepare an explanation. If you do have dings on your credit report, get ready to tell a prospective boss why, and what you've done about the situation, Bille recommends. For example, maybe someone in your family has had a medical crisis, and you've set up payment plans with creditors, she says. Talking to the employer could show that you have integrity and are being forthright about your situation, Bille says. She adds that employers who plan to take adverse action — such as not hiring you — due to information on your credit report are required to give you notice in writing before and after making a decision. They also have to give you a copy of the credit report they used, she says.
  1. Contact your state officials if necessary. If you have questions about whether it is legal for a specific employer to ask you to submit to a credit check during the hiring process, contact your state's department of labor, Morton recommends.

Overall, a credit check is not necessarily something to worry about, Bille says: “Most employers understand these past few years have been difficult, and many Americans have come upon hard times, often through no fault of their own.”