Why Would a Potential Employer Need to Check My Credit?

by valorey | Jun 27, 2020 | Uncategorized | 0 comments

Why Would a Potential Employer Need to Check My Credit?

“I lost my job due to COVID-19, so I’ve been desperately seeking employment. I’ve put out several applications and finally got a call back to interview. During the interview, they told me that they perform a credit check on the person that they choose. Why would a potential employer need to check my credit?”

Thank you to a loyal friend and client for this question.

There are many reasons why a potential employer will want to check your credit before you are officially hired. We will go over those reasons in this blog post, as well as what they can see, your rights, and if the state of your financial health will cost you a great job. 

According to HR.com, in 2018 approximately 95% if employers used some type of background screening in their employment process. However, only 16% will ask to pull your credit. Background checks are needed for a multitude of reasons and resources such as:

  • Criminal background
  • Identity verification
  • Credit report
  • Education verification
  • Driving records
  • Drug & Alcohol testing
  • Sex Offender Registry
  • Professional License Verification
  • International check
  • Social Media

But, why would they need to check my credit in the first place?

This practice is most common where you are being considered for a leadership position, jobs that involve money, jobs where you would be responsible for confidential information, and many more. If it doesn’t make sense to you, be honest and ask why they perform credit checks and what they are looking for. This is a great way to set your mind at ease while you await to complete the employment process.

For example, if you are being considered for a position in a bank, it would make sense that they wouldn’t want someone with a background of embezzlement. It can also give a good indication if you are truthful with the information on your application and what you told them during your interview.

What can they see?

Your credit report details to an employer are limited. They can see things like:

  • Credit and payment history
  • Types of credit
  • Balances
  • Available credit
  • Foreclosures
  • Bankruptcy
  • Other outstanding balances
  • Collections
  • Student loans
  • Previous employers (not all employers report employment, so this information is likely pulled from another source)
  • Identity verification – SSN, birthdate, previous addresses, etc

What about my credit score?

Your employment credit check does NOT reveal your credit score. They can only see the items I listed above. Those items broken down into five components can give the trained eye what your approximate credit score is, but anyone willing to go that far isn’t worth working for in my opinion.

From my own personal experience, they only wanted to use my credit report as a layer of identity verification and could care less about my payment history.

What they choose to take from the employment based credit report is up to the employer. Don’t be afraid to ask. Asking what they look for is a sign that you care about your credit.

What are the factors to my credit score as it is reported?

Great question!

The five components to your credit score are:

  • 35% Payment History
  • 30% Accounts Owed
  • 15% Length of Credit History
  • 10% Credit Mix
  • 10% New Credit

Your credit score is NOT on your employment credit report!

Will it hurt my credit if they do pull my credit report?

No. An employment credit check is a soft pull.

The only type of credit checks that show up on your credit report are hard inquiries. Depending on your credit, having a hard inquiry can cause your credit to increase by a few points, or decrease by a few points. It’s important that you keep your hard inquiries to less than 2 every 12-24 months. The more hard inquiries you have, the more points you will lose.

Personally, I prefer to keep my hard inquiries to 2 or less every 2 years. Why? At the end of two years, they will fall off of your credit.

Bonus Credit Report and Score Information on Mortgage Window Shopping

There is a shopping window for comparison shopping for mortgages without damaging your credit. I advise all of my clients to try to complete their mortgage shopping within 14 days, even though you have 45 days – anything can happen. Houses aren’t staying on the market very long, so if you’ll need to be ready to jump when the time comes.

Also, be mindful of the current climate of the economy, if rates are increasing/decreasing, and get locked into the best rate possible.

This ONLY applies to mortgage lenders.

According to the Consumer Financial Protection Bureau, the window shopping will only count as 1 inquiry on your credit report no matter how many mortgage lenders you consult with during this time.