Can Employers Check Your Employment History: Why Employers Check Your Credit

"With the job market becoming more competitive as the economy drops, it’s more important than ever to have an edge over the next person."

Lets say you’ve received the job interview of your dreams and aced it. On top of that, the interviewer(s) think you’re a great fit and are anticipating giving you an offer. Before you pop out the champagne and celebrate, you may want to wait for your credit report check to clear first. Most people don’t know this, but unless you’re applying for a position in Washington or Hawaii, most companies will perform a credit report check before giving an offer to a new employee.

You may be wondering why employers perform credit report checks. It comes down to these three reasons:

  • Your credit report lists your previous employers. With this information the employer should be able to confirm your employment history and identity.
  • Depending on the position that you’re applying for, your credit history will, unfortunately, define how well you can be trusted with valuables. Again, this specific reason would be if you’re applying for a position that requires handling large sums of money or is susceptible to theft/bribery, such as diamond appraisers or financial executives.
  • Overall, studies show employers believe there is correlation with how responsible a person is with their personal finances and their work ethic. If you’re sloppy with how you manages your funds, the employers will believe the quality of a your work will be sub-par as well.

Due to federal law, the (potential) employer is required to provide you a copy of your report, which agency generated your report, and told they have the right to dispute. You will most likely never hear this reason given to you because most employers would rather make the process less complicated for themselves. So, simply saying you weren’t the right fit or that they found someone more qualified is the typical excuse.

Now, you do have rights based on the Fair Credit Report Act (FCRA). Before an employer can run a credit check, you must authorize it by providing written consent. If the whole credit report check ordeal makes you uncomfortable, then you have the option of rejecting the request to run it. If you decide to not authorize the credit report check, just be aware that you will most likely have no chance of getting the job offer.

Credit Inquiry – Hard Pull vs. Soft Pull

Have you heard that whenever your credit report gets accessed, your credit score will get lower as well? This is a bit terrifying and unbelievable, right? Well, I’ve got some news for you. It’s PARTLY true. Now, before you start refusing to protect your identity by regularly check your credit score or get your credit report, let me explain.

There are two types of credit inquiries. One is called a “hard inquiry” or “hard pull”. And the other is called a “soft inquiry” or “soft pull”. Only a hard inquiry will cause your credit score to be lowered – based on the credit score formula breakdown.

What’s the Difference Between a Hard Inquiry and Soft Inquiry?

Hard Inquiry/Pull

First, as I mentioned above, a hard inquiry will affect your credit score, while a soft inquiry will not. Hard inquiries are typically well in your control, where you need to provide explicit consent to having someone run it against your social security number. So if you’re applying for a credit card or a loan, you can be sure it’ll be a hard inquiry/pull.

Though one hard inquiry may only affect your score minimally, multiple hard pulls can dramatically cause your score to drop. So make sure you only approve hard pulls once in a while.

Soft Inquiry/Pull

A soft inquiry is usually done without your knowledge, unless you monitor your credit report regularly. Soft inquiries are still visible on your credit report. They just don’t hurt your score.

Employers doing background checks and companies who want to provide you with some credit related offer typically run these. You know that “pre-approved” letters your get? Yep, that company most likely did a soft pull on your before sending out that offer.

And don’t worry; running a credit check on yourself is considered a soft pull. This makes sense because it’s known that securing your identity is extremely important. Credit agencies want you to check your credit report/score regularly. This can help you protect yourself from any mistakes or fraudulent activity.

A Related Story

When I was a freshman in college, I was sucked into applying for a lot of credit cards. I was approved for all the cards I applied for, until maybe my fifth card. After that I started receiving letters that said I was denied because of “too many credit inquiries”. I didn’t think much of why, until now. I was young and only cared about my free t-shirt. A few, I admit, I still use. They keep surprisingly well. If I had known about the ways to improve your credit score, I would have definitely been less inclined to apply for so many at once. Good news is that it didn’t cripple my credit and I’m still in the green of the credit score range.