When Can Employers Check Your Credit?

Your credit history can have a significant impact on things that have nothing to do with loans and credit cards. Companies often request to see your credit history when you set up utilities for your home, apply for an apartment, request an insurance quote or apply for a job.

That last one makes a lot of people nervous — what does someone’s credit history have to do with whether or not they’d make a good employee? In many cases, it has nothing to do with it, which is part of the reason most hiring mangers don’t do employee credit checks, according to a survey from the Society for Human Resource Management. In 2012, when the group most recently surveyed hiring managers on the topic, 53% of organizations didn’t conduct credit checks for any applicants, up from 40% in 2010 and 39% in 2004. The data is based on a survey of 544 randomly selected SHRM members and has a margin of error of plus or minus 4 percentage points.

There’s a misconception among the public that employer credit checks happen frequently, said Elizabeth Bille, vice president and associate general counsel of SHRM. When credit checks occur, they tend to be for specific positions related to finance and data security. In the 2012 survey, only 13% of hiring managers said they conducted credit checks for all employees.

“What employers are really looking for — again, if they look — are patterns of money mismanagement that could put the employee in a position where they may not be the appropriate person to manage the money on behalf of the company or might make them a little bit more susceptible to compromise their ability to handle sensitive financial information,” Bille said.

What’s an Employer Credit Check?

When a hiring manager wants to review an applicant’s credit history, he or she requests that person’s credit report. Credit scores are not part of employer checks — the number isn’t that useful, Bille said — and on that report, the manager will look for things like debts in collection or judgments.

“Typically what they’re looking for are patterns of money mismanagement and debt that the employee has not attempted to resolve,” Bille said. Things like education debt and medical debt aren’t part of such patterns, she said.

How to Prepare for an Employer Credit Check

First of all, a company cannot request your credit report without your written consent, so if it’s going to happen, you’ll know about it. Before you apply for a job, it’s a smart move to request your credit reports for two reasons: If there are errors on the reports, you can get them fixed (here’s a guide to disputing credit report errors) before there’s a chance they’ll harm your chances at a job. You want to regularly check your credit anyway, because inaccurate information can cause serious financial damage. You can get free annual credit reports at AnnualCreditReport.com and you can check your credit scores for free every month on Credit.com. Second, if your reports have negative information that’s accurate, you’ll want to see if you can get it fixed before an employer sees it. If you can’t, address it upfront with the potential employer.

“It looks a lot better to be proactive and mention it on your own and explain what you’ve done to address the situation, rather than have the employer discover it on their own later down the road,” Bille said. “Hiring mangers say they appreciate the honesty.”

If a credit check is going to happen, it’s almost certainly going to be later in the interview process, usually as part of a contingent offer (some states have laws about when an employer can review an applicant’s credit history). Even if there’s negative information on your report, the odds look good: 80% of HR professionals surveyed said they’ve hired candidates whose credit reports contained negative information.

In the event a company is considering not hiring you because of what’s on your credit report, they have to give you notice of how that is influencing their decision and allow you to respond.

For job-searching consumers, reviewing your credit history should be part of your pre-interview preparation, but keep in mind that your credit standing isn’t likely to decide your fate. When it comes to the most important things hiring managers look for in candidates, a clean credit history doesn’t make the list: HR managers are focusing on previous work experience, company fit and expertise needed for the job.