When Can Employers Check Your Credit?

Congress may make it harder for employers to check the credit scores of potential hires. Until they do, job-seekers need to know their rights.

It is an employer’s market. Job hunting has always been competitive, but since America began seeing heavy unemployment numbers in recent years it’s become downright cut-throat. Hiring companies feel free to demand more information from job candidates because there are so many people looking for work. Employers want to see more than resumes, references, and drug test results as they go through their vetting process. They also want to see your credit report.

More and more companies are using credit reports as a screening tool to evaluate candidates. Background checks have become more stringent and employers are pushing to see applicants’ financial histories. But job hunters are pushing back, and even the government is trying to stop it.

This past June, 4.4 million unemployed Americans passed the six-month mark on their job searches. Credit reports, which grade an individual’s creditworthiness like a report card grades a student’s performance at school, are a window into an individual’s struggle to pay bills.

Even those who are employed are having financial woes, so their chances of getting a better job are reduced if credit scores are involved. Many low-income workers may have poor scores because of bankruptcies, loan delinquencies, divorce, and/or medical problems. When a job seeker writes to human resources in response to a job post, should they worry that their financial condition may be on display and scrutinized? Increasingly, the answer is yes.

Background checks

Pre-employment screenings can include information from a variety of sources, including credit reports and criminal records. Historically, hiring agents ran credit checks to see how applicants for financial and government jobs handled their own finances before they would let them handle the company or country’s finances. This practice is spreading, though: The Society for Human Resource Management reported that about 13 reported of employers check credit reports for all candidates, and 47 percent check for those applying for certain jobs. And it's spreading at time when the nation's economic situation undermines the fairness of using credit scores: during and after a recession, even responsible consumers have trouble paying bills.

In 2011, Rep. Steve Cohen (D-Tenn.) introduced H.R. 321, the Equal Employment for All Act, which would amend the Fair Credit Reporting Act originally passed in 1970. The federal law requires employers to notify candidates that a credit check may be involved in the hiring process, and candidates must authorize it. The act, which has not yet been passed, would ban employers from using details in a credit report to make hiring decisions. Financial firms and government agencies, as well as jobs requiring certain security clearances, would be exempt.

It also requires employers to give potential workers a copy of the report so they can dispute the accuracy of information in it.

The legislation was a response to some states’ efforts to limit an employers' ability to consider a person's creditworthiness when hiring. Critics argue that the legislation would prohibit employers in nonfinancial firms from checking the credit history of employees who would be performing a financial function, like managing a store or handling credit card numbers.

Know Your Rights

Companies who use credit reports to make employment decisions have to comply with the Fair Credit Reporting Act, which is enforced by The Federal Trade Commission. Employers have to take certain steps before they can get a report, as well as after they get it if they take any adverse actions based on it. The company must inform the applicant that it might use the information to make their decision. Applicants must be notified in writing, not as part of an employment application. The company must also get written permission from the applicant. Before a company rejects a job application based on what they found in a credit report, the company must give the applicant a notice that includes a copy of the consumer report and a copy of their rights under the Fair Credit Reporting Act.

Most employers who run credit checks will look at whether candidates are paying their credit cards. Job hunters can refuse to consent to a credit report check, but that can appear suspicious. It’s like saying no to a drug test. You have the right, but in such a competitive market it is just not wise. The best advice is to check your credit history yourself and dispute anything that is wrong on the report before it makes it to the HR department.