Why Do Employers Check Your Credit?

Some employers do credit checks before hiring to help limit their risk. Here’s what they look for, your legal rights, and how to maintain a positive credit profile.

This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

At-A-Glance

Employers usually try to limit their risks when hiring. Reviewing credit reports helps to verify your identity and anticipate how you might perform on the job.

Given the widespread use of credit reports in employment, it’s a good idea to maintain a positive credit profile.

Concerns about the fairness of using credit reports in employment have led to federal, state, and local laws restricting their use. It’s important to learn your related rights.

To increase the odds that you’ll land your dream job, you’ll want to have a polished resume, a strong cover letter, and a positive credit report. The resume and cover letter are obvious. But why think about a credit check for employment? The simple answer is that your credit report can offer employers valuable insight into your ability to manage debt and pay bills, and could help them to get a sense of your overall reliability as well.

Let’s explore the insights that employers seek, as well as the data they see – and don’t see – to reach those insights.

Why a Credit Check for a Job? To Help Limit Employer Risk

First, it’s important to understand that employee background checks of all types – including credit checks – serve a common purpose: to help screen out unqualified applicants. Reviewing credit reports is one way that an employer can conduct due diligence when screening applications, and is an important part of helping to ensure that only qualified candidates make it through.

Although a credit report is not, by itself, proof of anything, employers often review it for certain behavior patterns, like:

Money management. Employers are more inclined to check the credit of applicants for money-related jobs, such as accountant or retail clerk. An employer may feel that a solid history of handling money well shows an ability to handle the company’s finances well, too. Of course, the employer may also see the inverse. Poor management of personal finances could be a warning sign that may indicate potential issues with managing the employer’s money in the future.
Reliability. Some employers may use a credit check to gauge an applicant’s ability to handle money responsibly, which could give them an overall sense of the applicant’s reliability.

Credit reports may be used as part of the background checks conducted for security clearance. Such clearances are required for all government employees who work on or near classified information or systems.

Beyond looking at candidates’ financial history, some employers use credit reports to verify information provided elsewhere. For example, credit reports also include your past employers, so they may be used to confirm your job history or to reveal undisclosed gaps in employment. Among other things, credit reports may be used to verify your identity because they include your Social Security number.

Employer Credit Checks Show a Limited Credit Report

Whatever the motivation for doing a credit check for employment, employers don’t see everything. Here are some of the things that they can see:¹

Information tied to your identity
This may include your name, any previous or alternate names, your Social Security number, and your recent addresses.
A record of credit accounts and payment history
Your credit utilization rate
Your outstanding debt as a percentage of your available credit.
Certain public records
This may include any bankruptcies within the past seven to 10 years.

However, employers do not see some other information, including:²

Your credit score
Although they’ll see a lot of data about your credit, employers will not see your credit score.
Your birth date
To help protect candidates from age discrimination, the credit reports employers see omit your birth year.
Account numbers
Income
Marital status
Information related to medical bills (even if unpaid)

Job Candidates’ Credit Report Rights

The use of credit reports for employment background checks is far from universal, partly because some employers aren’t convinced they’re relevant to job performance and partly because of concerns about their fairness. Currently, several states and cities have laws limiting or prohibiting the use of credit checks for employment purposes.

Additionally, several laws exist to protect people’s rights as a job candidate. If you’re job hunting, it pays to know:

Employers must get your written permission to pull your credit report.
Employers must give you a warning, and a copy of the report receives, if they are rejecting you based off information in the report.
Employers must give you an official adverse action notice if they do not hire you because of the contents of the report.³

Be Proactive to Help Make Your Credit Report Positive

Since your credit report could be vital to your employment candidacy, it’s important to be proactive about having a positive credit report. The following practices can help:

Pay your bills on time.
Use a sensible amount of available credit.
Limit applications for new credit.

Consider maintaining a variety of different credit accounts, for example, both credit cards and loans.

Finally, if you’re planning on looking for a job, it’s a good idea to get copies of your credit reports from all three national credit bureaus so you know exactly what’s in it. You don’t want a potential employer to surprise you. And if your report includes errors, you’ll want time to correct them.

Did you know? As an added security measure to help protect against fraud, American Express reports a reference number to credit bureaus – instead of your actual account number.

The Takeaway

Despite some concerns about how relevant the data in them may be, credit reports remain a common component of pre-employment background checks. You can try to make your report an asset by maintaining a positive credit profile.

^1,2 “Why Employers Check Your Credit Report and What They See,” Experian

³ “Can an Employer Check My Credit Score?,” Nolo

Allan Halcrow is a freelance writer concentrating in business, human resources, and diversity and inclusion. He is also the author of four books on management.

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.

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