Pre-Employment Credit Checks: What are They and What's On Them?

Getting a better paying job can be a good step towards improving your credit score. With more money, you’ll have a better chance of paying off your debt and keeping up with your bills. But could a pre-employment credit check when you have poor credit hurt your chances of getting a new job in the first place?

For that matter, can potential employers even see your credit score? And will they use it as a factor when considering whether or not to offer you the job? We spoke to the experts to find out the answers to this pressing job interview inquiry.

Pre-employment credit checks will pull your credit report.

If an employer runs a pre-employment credit check, will they be able to see your credit score?

Here’s what nationally recognized credit expert Jeanne Kelly told us: “a prospective employer might want to pull your credit report. They do not get your credit score, just a report.

“A credit check is a record of a person’s credit-to-debt ratio and shows how someone has managed credit and bill payments in the past and is one of the pre-employment searches a company can run before deciding whether to hire someone,” explained Elizabeth McLean, an FCRA compliance attorney for GoodHire. “It is important to note that the employer can view the person’s credit history, but not their credit score.”

Some poor decisions can be found without a credit check.

And what sort of things might an employer find when they look into your credit history? Unfortunately, they might not always be good.

“While employers may not be able to check your actual credit score, bankruptcies and other financial headlines that are published online will surface if a potential employer digs into your search profile,” warned Jonas Sickler, Digital Marketing Analyst for ReputationManagement.com. “If a hiring manager, client, or business partner searches your name and discovers an unsavory financial reputation, they could make assumptions about your character and judgment.”

While it is possible for potential employers to run a pre-employment credit check, is it likely?

Pre-employment credit checks require your permission.

It’s important to know that your employer can’t just check your credit report without your knowledge and consent, so you won’t be taken by total surprise.

“Employers may only check your credit reports with your expressed written consent,” advised Michelle Black, credit expert and founder of CreditWriter.com.

Certain states and cities limit what employers can do with credit checks.

The laws under the Fair Credit Reporting Act (FCRA) dictate employer credit checks give them a fair amount of leeway. While a current or potential employer needs your permission to run a credit check, refusing to grant them that permission probably means that you either won’t get the job or won’t have your current job for long.

This is why 11 states have passed laws limiting employers’ ability to check people’s credit:

• California
• Colorado
• Connecticut
• Delaware
• Hawaii
• Illinois
• Maryland
• Nevada
• Oregon
• Vermont
• Washington

While the specifics vary from state to state, many of them limit credit checks to managerial positions, finance jobs, or public safety officers. Some also limit what decisions can be made with this information, while a few of them outright ban the practice entirely.

These credit checks are more common in certain industries.

As far as how likely your credit is to impact your chance of getting hired, it depends.

“Some employers will pass over an applicant due to problems on a credit report, especially within certain industries,” Black outlined. “Additionally, if you and another applicant are equally qualified for a position a great credit report might make you stand out among the competition. Negative marks on your credit reports do unfortunately have the potential to cost you a job.”

And what are the sorts of industries Black is alluding to? Financial, mainly. As McLean said: “Companies that run a pre-employment credit check are typically hiring for positions in the financial services industry where the employee would manage money, or has access to money on a daily basis.”

So now you know there’s a chance your credit score will impact your odds of getting the job. How can you mitigate the possibility of bad credit impacting your hiring prospects?

Bad credit can be an obstacle, but it's rarely a deal breaker.

Even if you have bad credit, that doesn’t mean you automatically have to give up on a job you want. Fortunately, Ketan Kapoor, former CEO & co-founder of Mercer|Mettl, offered us a guide to managing the job application process when you have less than ideal credit:

“The fear of rejection is quite natural when you are already obsessing over a poor credit score killing your hiring chances. Remember that even if a credit check is in place, that won’t get precedence over the skills you have. When organizations are looking to fill urgent positions, wherein they require someone to take over as soon as possible, the credit score agenda takes a backseat. So, simply focus on highlighting your skills or experience and be your best version during the interview.

“Even if you have a bad credit score, most organizations provide a chance to explain the reasons along with a detailed plan to overcome the problem. So, your job is to convince the recruiter or HR that you are working for a fix and are expecting an improvement quite soon. Come up with a detailed answer about your finances and record positive changes before appearing for any interview. Reiterating the first strategy, try to keep your focus limited to the skills that they are currently looking for and boost your past academic and professional achievements. All of this can help in masking your bad credit score and nailing the job offer."

Employers can check your credit before and after you are hired.

When it comes to credit checks and the possibility of unemployment, you are much more likely to run into problems while applying for a position than you are after you’ve been hired. Checking credit history as part of a background check is a fairly common part of the hiring process.

Depending on how long that hiring process lasts, you might end up serving in the job for a while before the employer gets the results and decides to terminate you. Additionally, employers can run a credit check after you’ve been hired or if you are up for a promotion and let you go if the results send up a red flag.

(Everything in this section depends on which state you live in. For a list of states that restrict how employers can use credit checks, scroll up.)

It is important to note: These pre-employment credit checks will not return a copy of your credit score. Instead, they will only return a copy of your credit report. This will allow employers to view, for instance, your debt-to-income ratio and your history of bill payments.

Even with just a copy of your credit report, employers will be able to get a pretty good idea of how you have managed your debts over time, even if they aren’t given a single score to sum it all up. So if you have a bad credit score, your employment status could be at risk.

While there are no defined limits on what roles can require a credit check, it tends to be more common in certain industries and job types than others. Jobs in financial industries or finance positions, especially ones where you will be handling large amounts of money, commonly carry requirements for a credit check.

Your new job can also be a fresh start.

“Although the fact goes without saying, there can’t be a more opportune time to start fixing your bad credit. Use the ‘hiring excuse’ to push yourself into establishing good financial habits for both your personal and professional good, rather than spending sleepless nights worrying about credit scores axing your hiring chances. Make a debt repayment plan, start a sizable financial fund every month and repeat the process until the results are evident in your credit history,” said Kapoor.

You can’t fix your credit score overnight, but it shouldn't be too hard to keep it from affecting your job prospects. And once you get that sweet new gig, you'll have taken the first step to a better financial journey!

Michelle Black (@MichelleLBlack) is a credit expert and founder of CreditWriter.com.

Ketan Kapoor (@ketankapoor) formere CEO & Co-Founder of Mercer | Mettl.He was presented with the Economic Times 40 Under 40 Entrepreneurship Award in 2017, being named one of the top business leaders in the country. He co-founded Iyurved and serves as its Director.

Jeanne Kelly (@creditscoop) is an author, speaker, and coach who educates people to achieve a higher credit score and understand credit reporting. #HealthyCredit is her motto. As the founder of The Kelly Group in 2000 and the author of The 90-Day Credit Challenge, Jeanne Kelly is a nationally recognized authority on credit consulting and credit score improvement.

Elizabeth McLean is Associate General Counsel for Checkr, Inc.. She graduated with Honors from the University of North Carolina School of Law.

Jonas Sickler is responsible for building and executing the digital marketing strategy at ReputationManagement.com (@repmgmt_com). The broad scope of his role encompasses strategic content creation, web analytics, and developing and deploying targeted digital campaigns from concept to completion.