Credit Monitoring for Job Seekers: Why Employers May Check Your Credit?

Jun 5, 2023

6

min read

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icture this: You've aced the interviews, wowed them with your skills, and now you're just one step away from that dream job. But hold on tight because before the employer finalizes their decision, there's one more hurdle to clear: the infamous background check.

Your credit report is a critical aspect of the background check that often gets overlooked. Would you believe 16% of companies now conduct credit checks on job applicants? And what's more, this trend is on the rise.

But why exactly do employers care about your credit history? Let's explore the reasons behind this trend and uncover the insights that can help you navigate the credit monitoring landscape during your job search.

Why May Employers Check Your Credit?

Your credit report is like a window into your financial soul that shows how well you can manage your finances and how responsible you are. So, when employers dive into your credit history, they search for clues about your reliability and money management skills.

But that's just one of the reasons. Here are a few more compelling reasons:

Assess Your Financial Responsibility

The credit report can reveal the patterns of your financial behavior, such as timely bill payments, responsible credit card usage, and overall debt management. These are the reflection of your ability to manage financial responsibilities as well as your reliability in meeting obligations.

Certain job positions such as accountant and finance manager require individuals who can manage the finances well. You wouldn't want someone in your accounting department drowning in their own money troubles, right?

Assess Your Reliability

Your financial situation can have a significant impact on your job performance. If you're drowning in debt or have a history of money mismanagement, it could impact your focus, decision-making skills, or even your ethics on the job. By peeking at credit reports, employers can understand how stable and trustworthy you are, especially for roles that require a lot of responsibility and reliability.

Mitigating Potential Fraud or Theft Risks

Specific roles, especially those involving sensitive data, assets, or finances, can be vulnerable to fraud or theft. By conducting credit checks, employers aim to identify red flags that might indicate a higher risk of unethical or fraudulent behavior.

Legal or Contractual Obligations

Credit checks may be mandated by industry regulations or security clearance requirements in some sectors, such as financial services or government positions. Additionally, contractual obligations with clients or partners may demand employers to verify the financial stability of their workforce.

The Legality of Credit Checks

The credit check could raise an important question, Can a company just pull someone's credit without their consent or knowledge? Isn't it a breach of privacy? But here's the thing: it depends on the jurisdiction and specific circumstances.

Generally, The Fair Credit Reporting Act (FCRA) is federal legislation that sets the standards for employment screenings, including credit checks. Under this law, here are some things that employers need to do before the credit check:

Get written approval from the individual.
The report cannot include bankruptcies that are more than 10 years old. If it is mistakenly there, it should not be considered.
Inform the applicant if they are rejected based on their credit report.

But that's not all! The Equal Employment Opportunity Commission (EEOC) oversees if employers discriminate against applicants solely based on their credit report. It has explicitly stated that bankruptcy filings shouldn't be the sole basis for employment decisions.

State and Local Employment Credit Check Laws

Some states and localities strictly restrict and prohibit the use of credit reports on employment checks.

California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, Washington, and the District of Columbia have statutes limiting credit report use. In these states, credit checks are restricted to specified occupations or situations where financial transactions or confidential information are involved.

Many other states have legislation pending that might prohibit the use of credit reports by employers or place restrictions on their use. In addition, some localities also have limitations and prohibitions on job applicant credit checks.

For example, New York City prohibits credit checks on most job applicants. Exceptions include police officers and executive-level candidates with fiduciary responsibilities. Chicago and Philadelphia also restrict the use of employment credit checks.

What Types of Industries/Jobs Typically Pull Candidate Credit Reports?

Several industries and job roles commonly conduct credit checks in their hiring process. While the specific practices can vary by company, here are some industries and job types that often require or request credit reports from candidates:

Financial Services: This includes roles in banks, credit unions, investment firms, and insurance companies. Positions such as financial analysts, loan officers, underwriters, or those involving access to financial data often involve credit checks due to the nature of the work.

Government and Defense: Certain government agencies and defense contractors may require credit checks for positions involving security clearances or access to classified information. These checks aim to assess individuals' trustworthiness and potential vulnerabilities in sensitive roles.

Accounting and Auditing: Given the financial nature of these professions, employers in the accounting and auditing fields may request credit reports for candidates. This is particularly true for roles dealing with financial statements, internal controls, or positions that require handling company finances.

Law Enforcement and Public Safety: Police departments, correctional facilities, and other law enforcement agencies may conduct credit checks as part of their background investigations. These checks evaluate an individual's financial stability and potential risks associated with bribery, corruption, or susceptibility to external pressures.

Positions with Fiduciary Responsibility: Any job involving significant financial responsibilities, such as Chief Financial Officers (CFOs), controllers, or financial managers, may require credit checks to assess an applicant's financial management skills and ability to handle financial matters responsibly.

Roles in Security and Surveillance: Companies specializing in private security, surveillance, or alarm systems may conduct credit checks for positions related to asset protection, risk management, or handling sensitive client information.

Should a Candidate Be Forthcoming About His/Her Credit History?

Well, it depends on the specific context and the criteria of the position that you are applying for. In general, it is not a standard practice for employers to request or consider an applicant's credit history unless the job involves financial responsibilities or handling sensitive financial information. In such cases, employers may have a legitimate interest in evaluating an applicant's creditworthiness.

But, if your position has nothing to do with financial responsibility, there is usually no need to proactively disclose your credit history unless asked. However, it's crucial to note that this can vary depending on local laws and regulations, so it's advisable to research applicable laws in your jurisdiction or seek legal advice if you have concerns.

If an employer specifically asks about your credit history or if you believe it may be relevant to the position, it is generally recommended to be honest and forthcoming. Dishonesty or withholding explicitly requested information may harm your chances of being considered for the role or, if discovered later, could lead to termination if you are already employed.

Providing accurate information demonstrates integrity and transparency, which are valued qualities in the hiring process. You should be prepared to explain any negative aspects of your credit history and emphasize any steps they have taken to address financial challenges or improve your situation.

Does Bad Credit Affect Your Chances of Landing the Position?

Bad credit does not mean you will have a poorer chance of landing a position. Just like a single sheet of paper cannot decide your entire future, your credit report alone does not hold the power to dictate your job prospects. It's one of the many factors that employers consider during the hiring process.

But here's the thing: bad credit's impact on employment decisions can vary depending on the employer, industry, job role, and the specific circumstances surrounding the candidate's financial situation. Employers may weigh credit history alongside other qualifications if a role involves significant financial responsibility and demands a high level of trust.

Moreover, it's crucial to be aware that certain jurisdictions have legal restrictions on using credit information for employment decisions. Employers may be obligated to demonstrate the legitimate business justification for considering credit information and are prohibited from discriminating against candidates based solely on their credit history.

So, while bad credit might have some influence, it's not the sole determining factor in your job prospects.

Conclusion

As you embark on the exhausting job-hunting journey, it's crucial to recognize the often-overlooked significance of your credit report. So, you should also strengthen your credit report while strengthening your job profile. With credit checks gaining popularity, they have become a determining factor in landing your dream job.

While having bad credit doesn't necessarily disqualify you from job opportunities, why leave room for a potential stumbling block? So, as you navigate the competitive job market, seize the opportunity to monitor and improve your credit and position yourself as a well-rounded candidate ready to excel in any professional opportunity that comes your way.