Why do employers do a credit check?
Companies are the most concerned with protecting their employees’ personal information and their mental Wellness.
Whether or not a credit check is part of your background check will depend on what type of industry you are working in.
If you are in the human resources or financial industry, expect a credit check to be part of your full background search.
I know a credit check can sound scary but think of it this way. A new human resource representative desperate to pay their bills starts working at your current job.
This person has access to everyone’s personal information including social security.
One day they could decide to steal your identity in order to drain your bank accounts, open a new mortgage, or even take out new lines of credit.
Alternatively, they could sell your information to a fraudster.
Then from the company’s perspective, hiring an individual on a financial team with this same personal finance situation could embezzle money from the company. Does this sound as scary anymore?
Keep reading to learn what the company can see on your credit check if it is legal, and how to prevent your credit history from costing you a job or promotion.
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How does an employer do a credit check?
These days’ companies have two ways to run a credit check on you. The first option is by requesting a credit check from one of the three credit bureaus.
For example, Experian offers a service called employment insight.
The second option is to hire a credit screening service. Several companies online offer this service.
These services are also available to landlords.
All the employer has to provide for a credit screening is the applicants full name, social security number, and residential address.
Why employers do a credit check
The main reason for running a credit check is not only to prevent potential fraud or embezzlement. It’s also to protect employee health.
A case study by Forbes revealed, companies are worried about the mental wellness of their employees. Especially when they are experiencing financial stress.
Employees with high financial stress usually experience an increase in:
1. Absenteeism
2. Poor work productivity
3. Higher healthcare costs
This may sound odd to you.
However, all three of these areas cost the company more money in operation costs and will reduce profits.
Employers also believe your credit history is living proof of whether or not you are responsible by nature.
What does an employer see on a credit check?
The good news is employers will not be able to see your credit score. The main thing they can see is your payment history.
In addition, an employer credit check is classified as a “soft inquiry,” by all of the credit bureaus. This status prevents an impact on your credit history.
It is because you are not requesting a new line of credit.
Even though there is no negative impact on your credit history. The report can cause a negative impact on your hiring or promotion process.
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Below are the items employers are actually looking for:
1. Any active lawsuits or court filings against you
2. Any current accounts in collections and how many
3. If you’ve filed for bankruptcy
4. To determine if your debt is high for your current income
If any of these are on your current credit history, don’t stress too much yet. There are action steps toward the end of this post to help you improve your credit report.
Is it legal for an employer to run a credit check?
Companies need to adhere to specific restrictions before they are able to run a credit check. You must receive a separate document from the company telling you what is involved in the credit check.
They must also confirm the credit check will help them make decisions about hiring or promoting you. You will also need to give them written permission to run the credit check.
If you do not give your permission, the employer cannot run the check but they reserve the right to reject your application.
If the employer decides not to hire you, they must provide a copy of the credit check report to you as well as provide contact information for the company that ran the report for them.
Sometimes a credit check can report mistakes and providing you a copy of the report gives you a chance to dispute those mistakes with the credit bureaus.
If you do discover a mistake I recommend disputing it right away and let the hiring company know. It is worth it to see if you can get your application reprocessed.
Do not take no as a final answer if it’s based on something that should not be there.
Your take action guide
As a result, of your credit check your application can be rejected. However, there are some steps you can start taking now to help protect your chances.
They are also simpler than you might think.
1. Request a free credit report from the credit bureaus. It’s important to know where you currently stand.
2. Start paying your bills on time every month. If there is a bill, you constantly forget about set up a payment reminder on your phone.
3. Identify your smallest debt and focus on paying it off. This should be the only bill you are paying extra on each month. If it is a credit card, stop using it.
4. If you have an active lawsuit pending or court filing, search online for a financial advisor who might be able to help you negotiate these to resolve them faster. There are not-for-profit organizations that will do this free of charge.
5. Review your credit history to make sure there are not any mistakes. If you see, something that should not be there, dispute it with the credit bureaus to get it removed.
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Even if you only have, three months to start taking the actions above, it is worth it. The company reviewing your credit history will see the progress you are making.
Since I work in the financial industry, I’m used to credit checks being run. I have had employers run it more than once during the hiring process.
First, they run the credit check after the telephone interview. Second, they run the credit check right before giving me an offer.
This is usually a two-month period. The purpose is to gauge my financial responsibility.
If your credit check is run only once the lawsuits and mistakes will show status updates on your credit history as you are working through them.
Additionally, you will be proving you are capable of responsibility.
Besides, taking some of these action steps will help you improve your credit score.
Which means the higher your credit score the cheaper the interest on your remaining debts can become in the future.
References
https://www.experian.com/consumer-information/employment-credit-checks
https://smallbusiness.chron.com/decline-applicant-rental-property-31617.html
https://www.cnbc.com/select/can-employers-see-your-credit-score/
https://www.experian.com/blogs/ask-experian/do-employers-look-at-credit-reports/
https://www.consumer.ftc.gov/articles/0157-background-checks
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