Can an Employer Check Your Credit Report When You Apply for a Job?

by Des West on March 26, 2012

When you fill out a job application, don’t be surprised if your prospective employer requests your permission to pull a copy of your credit report. Employers in a variety of different industries use consumer credit reports to help them select responsible employees. A potential employer needs your permission to pull your credit report during the application process.

 Why Employers Check Credit

One common reason employers conduct credit checks is that doing so helps them evaluate the applicant’s reliability level. For example, if your credit report shows that you frequently miss payments to your creditors or have defaulted on certain financial obligations, a prospective employer may conclude that you handle responsibilities poorly. This could result in the company hiring a different applicant.

Prospective employers also check your credit report to determine how much debt you carry. If your credit report reveals that you are deeply in debt, the employer may turn down your application. Employees who struggle with debt pose a greater theft risk for businesses than financially stable employees.

Permissible Purpose and Federal Law

Federal laws pertaining to credit checks are governed by the Fair Credit Reporting Act. Under the FCRA, a prospective employer cannot legally pull your credit report unless it notifies you that it intends to conduct a credit check and obtains your written permission to do so.

The employer must provide you with a written notice disclosing its intention to pull your credit report. The notice must be clearly worded and easy to understand. In the event that you filled out a job application online, the employer can send its request via email.

Credit Score Impact

Certain types of credit inquiries, often referred to as “hard pulls,” have a negative effect on your credit score. Hard credit pulls occur when a lender pulls your credit report after you apply for financing or a loan. Collection agencies also conduct hard credit pulls. Employers, however, do not. Because your employer conducts a “soft” credit pull, your credit score will not decrease each time a prospective employer reviews your credit history.

Employer Responsibilities

In the event that a prospective employer passes you over for a position because of derogatory information on your credit report, the employer must notify you of its reasoning in writing. The company must also notify you that federal law entitles you to a free copy of your credit report whenever an employer chooses not to hire you based on your credit history. You can request your free credit report based on the prospective employer’s “adverse action”even if you have already received your annual free credit report.

If you receive your free credit report and discover that it contains inaccurate information, you have the right to dispute this information with the credit bureaus. If the credit bureaus determine that your dispute is merited, they will delete the incorrect data from your credit history. The credit bureaus will also forward a corrected copy of your credit report to any individual or business that conducted a credit inquiry within the previous six months.

You have the right to refuse a prospective employer’s request to view your credit history. Refusing this request, however, could result in the company selecting another applicant for the position. If your credit history contains negative information, federal law gives you the right to insert a 100-word consumer statement into each of your credit files. A consumer statement provides anyone who pulls your credit report with additional information about the circumstances surrounding your past credit problems. A prospective employer can then take the additional information into consideration when making a hiring decision.

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