Everything You Need to Know About Credit and Applying for New Job
If you have filled out a job application in the 21st century, the potential employer has likely requested your permission to look at your credit as part of their background check. Many job applicants wonder what their credit background has to do with their job qualifications.
Why do many employers look at the credit of job applicants as part of a background check?
Many prospective employers review an applicant’s credit report as a tool to identify concerns regarding potential employee theft and blackmail. Although credit does not evaluate a worker’s job or academic qualifications, it may indicate the possibility of lower worker productivity due to worries over personal finance issues.
Who Uses What and When
Industries that require credit checks include law enforcement, banking and finance, and government agencies. If a job requires any level of security clearance, access to financial data, or management of privacy and sensitive information, you should expect the employer’s background research on prospective employees to include information from your credit report.
Many consumers and prospective employees mistakenly believe a job interviewer will have access to their credit ratings (e.g. FICO score) during the hiring process. The three consumer reporting agencies, (aka credit bureaus) have publicly stated they do not provide credit scores to employers.
Moreover, prospective employers have limitations as to which data they can even view on your credit report. Just as federal law generally prohibits employers from asking job applicants about their race, their marital status, and their religion, companies providing credit reports as part of the background check will remove potentially discriminatory information before delivery to the employer. Specifically, the employer will not see any information that indicates your marital status.
Employers do not usually have a copy of your credit report during an interview. Like the rest of the background check, the credit report information typically becomes available after the first or second interview but before the employer makes the final hiring decision. It will include account names and balances but not account numbers. It will describe the types of accounts (e.g. home and car loans, credit cards, retail store cards, collections, etc.) and your history of on-time or late payments. It will also show any bankruptcy you may have filed in the past ten years. It may also include a list of previous employers, although just information is notoriously under-reported or long out-of-date.
What Employers Learn
Many consumers feel frustrated at the idea of having their credit report play a role in the hiring process. After all, what does your credit report say about your qualifications? Not much, really.
So why would employers pay to review your credit report before offering you a job? After all, federal law prohibits the access and use of your credit except for legitimate business purposes. What legitimate business purpose does your credit report play in the hiring process? Several, as it turns out.
The first reason for checking your credit involves the employer’s protection. If the prospective employee will have access to sensitive information, financial data, or even high-security materials, the employer will take advantage of any tool that might minimize the possibility of having their employees blackmailed or lured into data hacking situations.
A more prosaic reason for checking your credit report has to do with your day-to-day work productivity. If an employer notes multiple active collection accounts on your credit report or even a single, large, recent collection account, the employer would not be unreasonable to assume that the collection agencies will frequently attempt to call the new employee at work, decreasing that employee’s productivity. Additionally, distressed accounts on your credit report (e.g. collections, accounts with late payments, and accounts with maxed-out balances) typically create stress for the consumer, again leading to lower productivity on the job.
Conspiracy Theories
For conspiracy theorists who discount the credit bureaus’ statements that they don’t provide employers with credit scores, you can take comfort in the fact that the vast majority of employers know no more about credit scores than you do. Interpreting the meaning of a credit score goes far beyond the idea of “good scores” and “bad scores.” Lenders, for whom FICO-created credit scores, require expensive and highly developed, proprietary software to match their mission and risk tolerance to consumer credit scores. Employers show no interest in spending hundreds of thousands of dollars to develop such programs as a secondary tool in the hiring process.
While conspiracies fail to account for the many safeguards in place to the consumer’s personal information and what becomes available to the prospective employer, such safeguards cannot control how an employer reacts to the available credit report information.
For example, although the law prohibits age discrimination, interviewers and prospective employers have access to the applicant’s date of birth, usually on both the application and on the credit report.
Furthermore, regardless of the experience, you include on your resume or job application, the employer may jump to other conclusions about you if they see employers listed on your credit report that you have not included on your application materials.
Additionally, if the employer sees multiple addresses on your credit report, they may assume a level of instability in your life that makes them nervous to hire you. Finally, while your account numbers are not included on your credit report, employers may react differently to an applicant who has a Home Depot credit card on their credit report versus someone who has an open Victoria’s Secret account.
These are not conspiracies, mind you, in that they do not involve someone or some organization attempting to hide information in order to carry out illegal or unethical activities. Instead, these are usually real-life, individual reactions based on personal experience and cultural stereotypes. Regardless, we must recognize the potential for abuse on several levels.
Check Your Credit Before You Apply for a Job
If you plan to apply for new employment in the coming months, you likely expect to spend an hour or more updating your resume. You should also plan to pull your credit report as part of your job application preparation process. You have the right to pull your credit reports for free from each of the three main credit bureaus every twelve months. If you have not done so in the previous year, pull your three credit reports and review them for accuracy.
If you have been unemployed and plan to apply for a job, you can still get free credit reports directly through each of the three main credit bureaus Equifax., Experian, and TransUnion even if you have already pulled your free reports from AnnualCreditReport.com in the past twelve months.
Once you have your credit report, go through the following steps to discover any potentially damaging errors it may contain:
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Is your name spelled correctly?
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Does the report list any names you do not recognize or that identify family members? This may indicate errors or actual identity theft.
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Does the report list any addresses you do not recognize or those of family members? Like incorrect names, this may indicate errors or identity theft.
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Ensure the report lists your correct social security number. Additional or erroneous numbers indicate potential identity theft.
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Look through the list of your accounts and confirm they belong to you. If not, dispute them (steps listed in the next section)
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For each account you recognize, check the accuracy of the account’s status (open vs. closed, paid as agreed vs. charged off), the account’s balance (balances are typically updated just once a month), the account’s payment history (on-time payments vs. late payments), etc.
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Look at the list of organizations under the “Inquiries” section. You should recognize creditors and service providers under the “Hard Inquiries” or “Regular Inquiries” section. If you don’t, it might be a sign of identity theft. The “Promotional” or “Account Review” inquiries list organizations that send you credit card or insurance offers or that you already have a business relationship.
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Check the public records section. You should only find here bankruptcies you have filed recently (within the past 10 years for a Chapter 7 and the past 7 years for a Chapter 13). The credit bureaus stopped collecting information on judgments and tax liens for this section back in 2018. If you find these on your report, dispute them to have them removed.
Dispute and Clean up Credit Errors
You can best prepare your credit report for the job application process by ensuring it contains accurate information, whether it is positive or negative. For negative information, review the recommendations in the final section below about preparing for questions about such data.
While you can’t dispute all information on your credit report (e.g. some bureaus don’t allow dispute of addresses), you can follow these steps to dispute inaccurate details:
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Access the error dispute tool for each consumer reporting agency (CRA) whose report contains an error, following the links below:
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Be prepared to provide your login information if you have registered with the CRA before. Otherwise, you will need to register for a free account using an email, username, and password. They may also ask you for and require your social security number.
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After logging in, the CRA will dispute your credit report. Navigate to and click on the item you plan to dispute.
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Each CRA handles disputes a bit differently, but generally, you will need to identify the reasons you want to dispute the item. Options will appear in a drop-down or a checkbox format and include reasons such as “Does not belong to me,” “Believe it is fraudulent,” and “Discharged in bankruptcy.”
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After identifying the reasons you are disputing the item, you typically have the option to add a brief explanation of the error in a text box. The CRAs limit the length of your description, so keep it brief.
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At this point, you may either submit your dispute or navigate to and dispute an additional item.
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After submitting your dispute, the CRA forwards pretty much immediately your information to the creditor in question. That creditor then has 30 days to respond, agreeing with or arguing against your dispute. If they do not respond, the CRA processes your dispute automatically as you have requested.
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If the creditor disagrees with your dispute, you must then gather your documentation and contact the creditor directly. Keep copies (paper or electronic) of all correspondence and communications.
Add a Statement to Your Credit Report
If you find information on your credit report you disagree with, in addition to disputing it, you might consider adding a consumer statement to your credit report. This statement has no effect on your credit rating, but any human eyes viewing your report may notice your statement and take it into account, such as a potential employer.
Be Prepared to Answer Difficult Questions about Your Credit
As you prepare for a job interview that may involve your credit report, you should consider how to address negative but accurate information on your credit report. Inevitably, it is better to be upfront and honest with an employer about such information than hope they don’t see it when they likely will.
Negative information might include bankruptcies, late payments, maxed out or over-limit accounts, large balances, and collection accounts. Consider addressing these issues with the prospective employer ahead of time, perhaps sharing something like the following during your interview: “I noticed you requested permission to view my credit as part of the application process. Could I give you a heads up of what you might see there and why?”
If the negative item resulted from forces beyond your control (medical emergencies and accidents, for example), just tell it like it is and how you are addressing the challenge.
If the negative item resulted from your own consumer decisions, such as overspending or lack of discipline with credit cards, be honest. Then consider sharing what you learned from the experience and what your plan is to address the challenge. Be sure to have a plan in place, whether you are working directly with the creditor to repay the debt, working with a credit counseling agency like Money Fit, or dealing with it in some other way.
Better preparation means you will make a better impression on your prospective employer. After all, isn’t that the purpose of your application and interview?
Related Questions
Can prospective employers see your credit score? No, potential employers may review certain information from your credit history as part of their background check, but they do not see your credit score. Employer credit checks prohibit access to your score and your marital status, among other information.
What can you do if a potential employer didn’t hire you because of your poor credit? By law, the potential employer must first furnish you with a notification of potential adverse employment action before making the final decision. This should give you a short period during which you can check your credit report for errors and/or explain to the potential employer the negative items.
