Having bad credit can make it difficult to get approved for a loan or a credit card — but in some cases, it can also prevent you from getting a job.
According to a 2018 National Association of Professional Background Screeners study, 47 percent of employers run credit or financial background checks on candidates. Whether or not you’ll be one of those candidates depends on the type of job you’re applying for.
Why Employers Care About Your Credit History
Before we go any further, it’s important to know prospective employers cannot see your credit score. Instead, they can check your credit report, which is what your score is based on.
But why do employers care about your credit report at all? Simply put, certain aspects of the report can be indicative of habits or behaviors they don’t want in the workplace.
For example, if you have several delinquent credit accounts, that may signal you’re unorganized or don’t keep your word. If you have excessive debt or several credit cards with high balances, it can suggest you’re desperate and might be more likely to steal from or defraud the company.
“The belief is that putting [a candidate] in a position with access to large amounts of cash or in any other kind of financial role could provide them the means to resolve their financial difficulties the wrong way,” says Adam Calli, a human resources consultant with Arc Human Capital.
This may sound like the company is judging you without getting to know you, but it’s not cheap to hire and onboard a new employee. Employers must try to mitigate their risks as much as possible.
Which Jobs Are More Likely to Require Credit Checks?
Individual employers can choose to run a credit check on any prospective employee they want, so long as they’re operating in a jurisdiction in which doing so is legal (more on that in a moment).
In general, however, you’re more likely to face a credit check if you’re applying for a job where you’ll be dealing with money or need some form of security clearance. Jobs in financial services, as well as federal and state government jobs including law enforcement, are most likely to require credit checks.
“[Credit checks are] also a concern when the employee would have access to customer finances or financial information,” Calli says.
Depending on the job, an employer can choose to check the credit information of both candidates and existing employees, which means your credit can affect a position you already have.
The Fair Credit Reporting Act (FCRA) is the primary federal law governing employee background checks, including credit checks.
“There are also many states that have their own laws addressing it,” says Calli. “Employers hiring employees in those states — even employees who work remote in that state when the company is located elsewhere — must comply with both the federal and state statutes.”
According to the National Conference of State Legislatures, only 11 states limit how employers can use credit information. Some states have banned the practice altogether, as has New York City. Check with your state’s Department of Labor for specific rules.
Just because employers can run credit checks, that doesn’t mean you don’t have rights. The Federal Trade Commission outlines the rules employers need to follow, but here are some key things to know:
- Before checking your credit report, an employer must notify you of its intention and get your written permission to do so.
- If an employer plans to reject you based partially or completely on information in your credit report, it must notify you before making the decision and give you a reasonable amount of time to respond and plead your case, typically 3-5 business days.
- If the employer goes through with its decision to reject your application, it must provide you with an adverse action notice containing the name of the credit reporting agency it used to get your report and explaining your right to a free copy of your report from that agency within 60 days.
How to Prevent Your Credit From Affecting Your Employment
There is no minimum credit score requirement to get a job in finance or with the government. Instead, it’s important to make sure you develop and practice good credit habits.
If you’re behind on payments with one or more accounts, get current as quickly as possible. Also, pay off any debts you may have in collections, and make payments on time going forward. Pay down credit card debt and keep your credit card balances low. Avoid applying for multiple credit accounts in a short period.
If you have some major negative items on your credit report, such as a bankruptcy or foreclosure, there is not much you can do about the matter except wait for it to fall off your report naturally. If you can prove that you use credit responsibly now, that may be enough to assuage an employer’s concerns.
James Garvey is CEO of Self Lender.
This article is for informational purposes only and does not constitute legal advice.
James Garvey is the CEO at credit-building app Self Lender. Specialists in credit-builder loans since 2014, James and Self Lender have helped hundreds of thousands of people get started with credit online in all 50 states.