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Can I be denied a job because of my credit?

Why Do Employers Check Credit?

Updated on October 17, 2022


Eight states in the US restrict employer-run credit checks in one way or the other. These states are California, Hawaii, Illinois, Connecticut, Maryland, Vermont, Oregon, and Washington. If you apply for a job outside of these states, your employer is allowed to do a credit check for employment. A credit check is not an uncommon practice among companies and business organizations today.

Usually, it is part of background checks which every functional and quality-driven enterprise is expected to do before making any hiring decision. Individual companies also check your credit history when promoting a member of their staff. Therefore, this article is essential not only for job candidates but also to those already employed who are working towards progress in their job.

The Fair Credit Reporting Act regulates all actions concerning access to your credit report. The Act sets, in explicit terms, the limitations on when your credit information can be accessed. These limitations also include who can get such access. More particularly the act spells out certain restrictions on employer credit checks that use credit reports to screen new job applicants.

To start with, before an employment credit check can be conducted, the employer must obtain your consent. This invariably suggests that failure to obtain consent or refusal to give it will cause access to your information to be denied. However, it is noteworthy that the consequences of such refusal might be fatal to your chances of getting the job with your potential employer. Furthermore, where an employer decides to not hire you based upon your credit report, it is required of them to provide you a copy of the report for you to review yourself before taking a serious and negative action such as denying you the employment opportunity. The essence of this is to protect individuals from errors with grave impacts on their life that might be in their reports as well as to give them the opportunity to address and correct such errors.

Why Employers Do Credit Checks for Employment

At this stage, it is necessary for us to answer the question of why do employers do a credit check. Interestingly, there are a few but cogent reasons why a credit check for employment is now a trend in the business world these days. Here, we highlight and briefly explain these reasons.

  1. Protection against actions violating ethical standards
    One of the significant reasons employers do a credit check on their potential employees is to prevent their organization against actions that violate ethical standards. Indeed, there are a lot of details a job applicant might omit deliberately where such details have a chance to reveal their unethical tendencies that may jeopardize their chances of landing the job. By conducting an employment credit check, such actions or behaviors might be exposed to recruiters. For instance, history of negative public records or even that of some derogatory marks is a reliable indicator to employers that an applicant has a record of untrustworthiness or improper behavior. For positions that command a great deal of responsibility, like government work or medical jobs, or for jobs that require access to company funds, employers may be on the lookout for these sorts of negative indications.
  2. Prevention of criminal behavior
    Beyond issues of what may or may not violate ethical standards of a place of work is that of crime. This is another big answer to the question of why do employers do a credit check. Credit checks for employment help to prevent the employers from recruiting someone with likelihood to commit one crime or the other. Your credit history can be a strong indicator of your criminal past if you have one, and it is the responsibility of recruiters to protect the hiring company from every manifestation of illegal activities.
  3. Nature of the position
    Apart from the signs of illegal activities, the kind of job you apply for is one more answer to why do employers do a credit check. Some jobs require a near-perfect money management history to enhance your chances of being considered for them. More often than not, this frequently applies to positions relating to accounting and money management where there is massive potential for fraud, money diversion, misappropriation, and embezzlement. Conducting a credit check, therefore, becomes an essential part of the hiring process of any prospective employer before appointing anyone to such delicate posts.
  4. Indications of general lack of responsibility
    While financial information may not be the priority of your employer when you apply for a particular job, ascertaining that the prospective employees are responsible is undeniably a necessity. Thus, one more answer to the question of why do employers do credit check is to prevent hiring an applicant with a general lack of responsibility. For instance, an applicant claims to have made an excellent six-figure income over the course of the previous fifteen years, but contrary to the claim, their credit history shows repeated credit problems during the period. This signifies that they are lying about their income or they are weak at money management, or they have a significant financial issue negatively affecting their finance. In any case other than the latter, such inconsistency in the claim and credit history could be a big sign of irresponsibility on the part of such applicant.

In other words, employers have a responsibility to make sure that the proper due diligence is observed, and this can only be done through credit checks for employment. This is not limited only to the application process; it also extends throughout the employment relationship after the appointment.

What Do Employers Look for in a Credit Check?

After analyzing the reasons why employers do credit checks, it is essential for us to consider the things they specifically look for in them. Actually, by understanding the reasons recruiters do employment credit checks, you should already have a deep insight as to what do employers look for in a credit check. It is simple, what employers look for in a credit check is a positive financial history. By having a positive credit history, the employers become assured that you are suitably qualified for a job. Your credit history must not have any sign of financial irresponsibility as it could go a long way in determining your susceptibility to ethical misconducts. As earlier highlighted, another answer to the question of what do employers look for in a credit check is the absence of illegal activities. When your employers look into your credit history, they look forward to one with no signs of illicit pasts that may be injurious to the interest of their company.

How to Prepare for an Employment Credit Check

While it is good to know what employers look for in a credit check, it is equally important for you to know the necessary steps to take if you find yourself in a compromising credit-related situation.

  1. Prepare for scrutiny
    The first and the most important thing for you to do is to be prepared. Before you apply for any job, make sure you find out what is on your credit report. Advisedly, get a copy of your credit scores from each of the three credit services namely Equifax, Experian, and TransUnion. By doing this, you won't be oblivious to any wrong item that you don't know about until you are asked by an interviewer.You have the right to access your credit report for free once every 12 months under an amendment to the Fair Credit Reporting Act. Therefore, do not hesitate to take advantage of it ahead of any employment credit check. It should be noted that if you spot any mistake on your report, do well to contact the creditor that made the error, correct it and ask that the error is reported to the three agencies.Lastly, if there is any negative information about credit card bills, unpaid student loans, or bankruptcies on your report, do not waste time and money on credit repair schemes as it's very hard to delete the truth from your credit file. You can improve your credit fast, but it still takes a few months. So, what are you supposed to do then? Read the next point.
  2. Get your argument ready and bring up issues on your own
    As an applicant, if you have bad credit and the recruiting company asks for permission to do a credit check for employment, it will be smarter if you bring up any issues they might discover proactively by yourself. Bringing out your side of the story before the employers even realize there is an issue puts you in a good position. This allows you to control the story instead of letting the credit reporting company do it for you. Any such story or argument you present however must be convincing. It should be short, solid and sincere. Acknowledge the issues in your credit and show a positive side to them.

Also, convince the employers that these issues are one-time problems and belong to past, giving a strong indication you have changed for good. Remember you are not alone. You are not the only one with credit history issues (if you have them). Therefore, avoid financial stress and give off a more positive vibe.

You must not allow credit check by an employer affect your confidence and efforts. You must always remember that your experience, expertise, performance during an interview, and other factors largely determine what happens to you when looking for a job or promotion.

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Noel Ballon

Noel Ballon is a skilled personal finance writer passionate about helping people to succeed financially.

As a guest writer for CASH 1, Noel has shared his knowledge on a variety of financial issues, including budgeting, saving, investing, and retirement planning

Noel has a background in economics and finance with over five years of experience writing in the financial sector.

He works to simplify complicated financial ideas so that people from every area of society may understand them.

When Noel isn't writing, he likes keeping current on the latest financial sector changes and looking for fresh approaches to assisting people in choosing wise financial decisions.