Credit Check for Employment: Why Employers Check Your Credit Report

In certain states, employers have the right to check the credit report of potential employees before they make a hiring decision. The main argument for justifying the practice says this data gives companies better insight about a candidate’s ability to carry out their job functions – especially if they are moving into a position that involves handling finances. Some believe that if an individual is incapable of managing their own finances, this may correlate with how they may manage other aspects of their life, including their job. Opponents of this practice call into question the correlation between a person’s credit and their actual job performance.

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Where Can Employers Check My Credit Score?

The issue of whether employers can check your credit report has been contested in several states and cities throughout the United States. Know that the Fair Credit Reporting Act (FCRA) requires employers to obtain consent before they pull an applicant's or employee's credit report. In other spots, credit reports can't be checked unless an individual is applying for a very specific position.

Currently, 11 states place restrictions on an employers’ ability to use credit information for employment decisions – California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington.

You can use the list below to see the exact wording of the regulation for the state in which you live.

State

RegulationLegislation

California

An employer or prospective employer cannot use a consumer credit report for employment purposes, unless an exception is present.Assembly Bill 22
ColoradoAn employer shall not use consumer credit information for employment purposes unless the information is substantially related to the employee's current or potential job.Colorado Employment Opportunity Act

Connecticut

No employer or employer's agent, representative or designee may require an employee or prospective employee to consent to a request for a credit report that contains information about the employee's or prospective employee's credit score, credit account balances, payment history, savings or checking account balances or savings or checking account numbers as a condition of employment, unless exemptions applyPublic Act No. 11-223

Delaware

An employer may not require an employee or applicant to consent to a request for a credit report as a condition of employment.Delaware House Bill No. 167

Hawaii

Employers may not refuse to hire an individual, or fire them, because of the individual's credit history or credit reportHouse Bill 31 SD1 CD1

Illinois

It's considered unlawful for any employer to refuse to hire or otherwise to discriminate against any individual in compensation, terms, conditions, or privileges of employment because of the individual's credit history or credit reportEmployee Credit Privacy Act

Maryland

Employers cannot refuse to hire individuals or change compensation, or a term, condition, or privilege of employment because of the individual's credit history or credit report. They also cannot inquire about an applicant's or employee's credit history; or order or obtain an applicant's or employee's credit report from a consumer reporting agency.Job Applicant Fairness Act

Nevada

Employers can't use an applicant's or employee's credit report or credit history to determine whether to deny employment, discharge, or determine the compensation or the terms, conditions, or privileges of an employee.Nevada Senate Bill 127

Oregon

It is an unlawful employment practice for an employer to obtain or use for employment purposes information contained in the credit history of an applicant for employment or an employee, or to refuse to hire, discharge, demote, suspend, retaliate or otherwise discriminate against an applicant or an employee with regard to promotion, compensation, or the terms, conditions or privileges of employment based on information in the credit history of the applicant or employee.Senate Bill 1045
VermontIt is illegal for employers to obtain credit reports or use information within them for the make decisions about promotions, compensation or hiring/firing of an employeeVermont Act No. 154 (S. 95)
WashingtonAn employer cannot obtain a credit report that contains the consumer's creditworthiness, credit standing, or credit capacity.RCW Chapter 19.182 — Fair Credit Reporting Act

How Can I Check What Employers See On My Credit Report?

If you wish to take a look at what potential employers may see when they pull your credit report, you can. Everyone is entitled to receive one free copy of their credit report per year, from each of the three major U.S. credit bureaus -- Experian, Equifax and TransUnion. To get your reports, you can use AnnualCreditReport.com, which is a federally approved website. In theory, the three reports from each of the credit bureaus should contain more or less the same information. The best strategy is to request one report from a single agency every few months. That way you can monitor your credit reports for changes throughout the year.

Note that the report your employer pulls isn't the same one you get from the bureaus. However, you can see most of the same information on your personal reports that the company would see when looking at theirs.

It's impossible to tell what specific data a company may be looking at within these reports, when evaluating a candidate. Account status and payment history may be one of the more important indicators on one's credit report. If you've ever been late paying your bill or an account of yours was shut down and sent to collections, these are likely to reflect negatively on you in the eyes of an employer. Likewise, if you ever declared bankruptcy or if your report contains an unpaid tax lien, these are also viewed as negative. Note that most of these items will not stay on your report indefinitely. For example, late payments will only remain on your report for 7 years, while bankruptcies will be listed for 10. Therefore, if you are in your 40s, and made some financial mistakes in your 20s, there is a good chance your employer will not see that information.

When you examine your credit reports, you should be on a lookout for errors. The FTC conducted a study that found that one in five reports contained errors that needed to be corrected. We expand more on this in the following section.

Employers Look at Credit Reports and Not Credit Scores

When employers perform a credit check, they are looking at your credit report, not your credit score. The latter is just a three-digit number that takes in all the information within your credit report, passes it through some algorithm, and assigns it a score.

Disputing Errors on Credit Reports

If you find an error on your credit report it is crucial you correct it. When an employer performs a credit check, they will be unable to determine something is misattributed to your account, unless you notify the credit bureaus.

Consumers who believe they may be victims of identity theft have the right to put a freeze on their credit reports. This will prevent anyone from being able to apply for any loans or jobs under your name, since no one will be able to pull the credit reports. Use this time to dispute items in your credit file by submitting requests to the three credit bureaus. You can submit written requests at the following addresses:

TransUnionEquifaxExperian
TransUnion LLC Consumer Dispute Center P.O. Box 2000 Chester, PA 19016Equifax Information Services LLC P.O. Box 740256 Atlanta, GA 30374 ExperianExperian P.O. Box 4500 Allen, TX 75013

Sources

  • http://leginfo.ca.gov/pub/11-12/bill/asm/ab_0001-0050/ab_22_bill_20110920_enrolled.pdf
  • https://www.cga.ct.gov/2011/ACT/PA/2011PA-00223-R00SB-00361-PA.htm
  • http://legis.delaware.gov/LIS/lis147.nsf/vwLegislation/HB+167/$file/legis.html?open
  • http://www.capitol.hawaii.gov/session2009/bills/HB31_CD1_.pdf
  • http://mlis.state.md.us/2011rs/chapters_noln/Ch_29_hb0087T.pdf
  • http://openstates.org/nv/bills/77/SB127/
  • https://olis.leg.state.or.us/liz/2010S1/Downloads/MeasureDocument/SB1045/A-Engrossed
  • http://www.leg.state.vt.us/docs/2012/bills/Passed/S-095.pdf
  • http://apps.leg.wa.gov/RCW/default.aspx?cite=19.182

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