Why Do Employers Check Credit Before Hiring?
Tons of people are checking your credit. Lenders, credit card companies, banks, even your potential landlord is checking your credit report and looking to see what score you have. It makes sense that many of these companies are checking your credit; they are entrusting you with their money, or counting on you to pay your bills (and if you screw it up, they face a huge loss). By checking your credit, they can see how potentially trustworthy you are, and how responsible you are with your money.
One often overlooked group of people who are going to want to check your credit are employers. It’s understandable that we don’t think about potential employers wanting to check our credit. When people give tips about getting a job, they focus more on having a strong resume or how to dress for an interview, not to having a strong credit score. After all, the point of having a job is to get paid, not to owe someone else money — why should your boss care what your track record is with debts and bills?
However, there are many reasons why an employer will want to check a potential employee’s credit. It is a very routine part of screening applicants, right along with the resume, the interview, and even a drug screening. When a company has to trust an employee, it makes sense they would want some extra assurance that they are hiring a responsible and trustworthy person.
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What Kind of Credit Check Do Employers Run?
There are two different kinds of credit checks: a hard inquiry and a soft inquiry. A hard inquiry is done when a person is requesting a loan or credit card. The act of requesting a hard inquiry shows up on your credit report in the future, and multiple hard inquiries within a small period of time can damage your credit. Hard inquiries also show all of the information the credit report the credit bureau has, including personal and financial info.
Soft inquiries are what potential employers do. A soft inquiry doesn’t show up on your future credit reports, and the information in the report is limited. A lot of sensitive personal and financial info, like account numbers for credit cards, isn’t shown. It does show your credit history, which can include missed payments, bankruptcies, and such.
When you personally check your credit, it counts as a soft inquiry. In a personal credit report, you get all of the information that would be present in a hard inquiry and your credit score. If you are monitoring your credit, either through your credit card, bank, or third party, they utilize soft inquiries to keep an eye on your score and recent additions to your report.
Credit Scores, Background Checks, and Trust
The main reason why employers will check the credit of potential employees is because they are looking for workers they can trust. Now, the extent of the need for trust varies between industries and businesses, but overall, every business wants to be able to trust their employees.
Your credit report gives employers a more in-depth look into you as a person. By looking through your credit history, an employer can make some assumptions about you. If you have a spotless record, with your credit report demonstrating that you consistently make your payments on time and in full, they can assume you are financially responsible. Hopefully, that responsibility will extend past your bills and into your job.
On the other hand, if you have a long history of missing payments, it conveys that you aren’t financially responsible, that you don’t take serious things like your bills seriously, and that in turn might extend to you as a worker. A person who misses due dates on bills might be bad at staying ahead of deadlines. For similar reasons, many employers do a basic background check. A person might have a clean criminal record, but a questionable credit report. While a person can control what is in a resume or cover letter, they can’t control the information displayed in their credit report.
Trusted with Valuable Information
Some industries and jobs require workers have access to private and sensitive information, either for the company or their clients. It is in everybody’s best interest that the people who have access to this information are both trustworthy and in a good place financially. If a person is in trouble financially, they might be more likely to steal the information for their own benefit.
For example, let’s say a person works for a medical billing company and has access to people’s personal information. They could look up social security numbers, date of birth, full name, and more, all information that could let them steal a person’s identity.
It’s not just information at risk, though. Many companies want to prevent workplace theft as much as possible, especially if employees could easily steal and resell products or tools. If a person is in good financial standing, they theoretically won’t feel a need to steal from their employer.
Need to Trust Their Decisions
If you are looking to place a person into a position with a lot of power, or the job is all about helping others make the right decisions, you’ll want somebody who makes good choices in their own life. For many companies, when hiring somebody for upper management, it’s a requirement to check their credit. If the applicant is going to potentially make decisions that could heavily influence the future of the company, you’ll want to hire someone who is smart and responsible in their own life.
Similarly, if you are going to hire for a job where the whole purpose is to help others make financial decisions, you want to make sure they are smart with their own money. It wouldn’t make sense for a bank to hire a financial advisor that can’t handle their own debt, but then tell them to advise others on how to spend their money.
Preparing For Your Job Application Credit Check
First off, be aware of your credit situation. Request a copy of your credit report and know your standings. If you have great credit, then you don’t need to worry. But if you have mediocre, poor, or no credit, and you are on the job hunt, then credit repair is something you need to think about.
It’s unlikely that you will be completely denied from a job just because of your credit, but many employers use it as a way to compare candidates and get a little further insight into who they are.
Employers also use a credit check as a form of fact checking, just making sure a person’s story lines up. Many people lie or mislead in interviews in order to land a job, and a credit check could be used to make sure they are completely truthful. Be truthful in your interview, and if factors that contribute to having bad credit come up (like losing a job and falling behind on bills) explain what happened.
If your credit isn’t great, it’s not the end of the world. You can still get a job, but it will require some extra planning and preparation. First, create a plan to fix your credit and get working on it. Pay your bills on time and use your credit cards responsibly. If you can show potential employers you are making wise decisions now, they’ll be more likely to look past previous mistakes. If you don’t have the time to do the work yourself, look into a credit repair company to help you.
During the interview process, if an employer is going to check your credit, they’ll usually give you a heads up about it. Control their initial impressions and talk to them right then about your less than perfect credit. Let them know what to expect from your report; that way, they aren’t surprised when the it comes in.
Give context for things like missed payments, that way they don’t just assume you are irresponsible. Then, explain what you are doing to improve your credit and how you’ve turned your life around.
At some time or another, it’s likely an employer is going to check your credit. Your credit report isn’t the grand decider whether you get a job or not, it’s just another consideration in a decision. If you have a poor credit report, it’s not the end of the world, but it is something to work on. Work on paying your bills on time, use credit cards responsibly, and try to work on paying off debts before taking out more loans.
Want to raise your credit score before applying for a job? Learn how your score is calculated, and what you can do to improve it, at our credit score resource center.
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Ben Allen is a freelance content creator and digital marketer who believes in helping small businesses succeed. He spends his free time bragging about his two daughters, eating stuffed crust pizza, and playing video games.
This post was updated February 28, 2019. It was originally published September 19, 2017.