I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.See all posts Frank Gogol
Can You Be Denied a Job Because of Bad Credit?
At a Glance
- Bad credit refers to a negative track record with lenders, often resulting from late or non-payment of
loans, and is reflected in your credit history.
- Different companies have varying criteria for defining bad credit, and creditworthiness is summarized by a credit score.
- When it comes to employment, certain states restrict employer credit checks. Employers may conduct credit checks to assess financial stability and minimize risks of theft or fraud.
- To minimize the impact of credit scores on job prospects, individuals can review their credit reports, reduce debt, be proactive about discussing their credit history, and explore alternative job search options.
Many of us have some personal information hidden away in our credit history that we would rather not have anyone else know about. Especially when applying for a job.
Unfortunately, if you are applying for a job, there’s a chance that your potential employer can get to know this secret and even ask you about it during your interview.
In certain states, employers are entitled to check your credit history when you are applying for a job. Most job seekers don’t’ even know this, and it raises a really important question is: can you be denied a job because of bad credit?
The short answer is yes, you can.
Also, keep in mind that bad credit is different than no credit — but in this case, bad credit can be the culprit.
If you have a poor credit history, the best thing you can do is be prepare to be asked about it or even to have to raise the topic yourself. Below we explain why employers look at your credit history and what you can do to be prepared.
What is Considered Bad Credit?
Bad credit means you have a bad track record with lenders. Usually, this is due to defaulting on one of your loan agreements. Simply put, you didn’t pay when you said you would pay and it might have been a pattern.
You get a poor credit record if:
- You pay late,
- You don’t pay the agreed upon amount, or
- You don’t pay at all
If one of the above occurs, it gets noted on your credit history, which is available for anyone who can do a credit check to see. Your credit history is summarized (according to different models) into a credit score which provides an at-a-glance look at whether you have a good or bad track record with credit.
Each company will have their own guidelines for what they consider bad or poor credit score. Here is a general guideline:
- Excellent credit score: 700 – 850
- Good credit score: 680-699
- Average credit score: 620 – 679
- Poor credit score: 500 – 619
- Bad credit score 300 – 499
Employee Background Checks and Your Rights
The final hiring decision is in the hands of the employer, but your rights, particularly concerning your credit information, are protected by law. As part of the hiring process, employers may conduct background checks, which could include a review of your credit report. They are, however, bound to comply with the Fair Credit Reporting Act (FCRA), which provides several safeguards for you as a consumer.
Here’s what employers must do:
Seek Your Consent for Credit Inquiries
Before an employer can perform a credit check, they are required to obtain your explicit consent. This means they must clearly communicate their intention to conduct a credit check and require your written approval to proceed. This consent should be requested via a document that is distinct from the job application form to ensure you are fully aware of the use of your credit information. It’s important to clarify whether this authorization is for a single credit check or if it extends to periodic checks over the course of your employment. In certain jurisdictions, employers are also mandated to provide you with a copy of the credit report they obtain, irrespective of the hiring outcome.
Inform You If Credit Affects Employment Decisions
Should an employer decide against hiring you based on your credit report, they are required to inform you. They must provide you with the credit report they used in their decision-making process and a summary of your rights under the FCRA. This transparency allows you to understand any negative factors in your credit history that you may need to address for future job applications.
Allow You to Challenge Discrepancies
You have the right to inspect your credit report and challenge any errors that might have swayed the employer’s decision. It’s advisable to not only address any concerns with the potential employer but also to dispute errors with the credit reporting agencies—Experian, TransUnion, and Equifax. Correcting these inaccuracies ensures that future background checks by employers or credit evaluations by lenders are based on accurate information.
Employee Notification and Permission Requirements
Beyond just being informed and providing consent for credit checks, you are entitled to several other protections under the law when it comes to employment-related credit screenings.
Notice of Employment Denial
Should an employer consider denying you a position based on your credit, they are obligated to issue a preliminary warning, known as a “pre-adverse action notice.” Along with this warning, you should receive the credit report that influenced their decision and a document outlining your rights under the law.
Opportunity to Respond
Employers must also provide a designated waiting period, usually between three to five business days, before finalizing their decision. This interval allows you to address any items on your credit report that may have raised concerns. If you find inaccuracies on your report, this is the time to dispute them with the credit reporting agency involved.
Final Decision Notification
After an employer has made a decision based on adverse credit information, they must send you a “post-adverse action notice.” This notice should include the credit reporting agency’s name and contact details. It should also inform you of your right to obtain a free copy of the credit report in question within 60 days of the notice.
Where and When Bad Credit Can Affect You Being Hired
If a potential employer wants to check your credit, they won’t be able to see your full credit score. They will only be able to see a modified credit report that will show them your debt and payment history.
Some states restrict employer-run credit checks, so if you are looking for a job in one of these states you don’t have to worry. These states include:
You might be wondering why on earth would a potential employer want to check your credit? And why can you be denied a job because of bad credit? If you are applying for a job where you will have to handle cash, you get a corporate credit card, you have access to the business’ financials or even where you get told corporate secrets or handle sensitive customer data, chances are that your potential employer will run a credit check.
These employers want to know if you (as a potential candidate) are in financial distress. If you are, it increases the risk of theft or fraud.
Your credit history could also be an indicator of some other problems your employer wants to avoid. For example, late payments could indicate a lack of organization, responsibility or keeping to your word.
If your potential job requires a security clearance, you can be almost certain that your employer will want to check your credit history.
4 Steps to Minimize Your Credit Scores Impacting You Getting Hired
If your potential employer does a credit check, you have no control over what they decide to do with that information. There are, however, steps you can take to be prepared for any potential questions about your credit that could come up in an interview.
1: Get Your Credit Report (for Free) and Review it
First of all, you’ll want to know what your potential employer will be seeing. You can get one free credit report from each of the three bureaus (Experian, Equifax, Transunion). Make sure you review the report to see if there are any errors. Errors happen more often than we think and they affect our credit negatively. If you find any errors, make sure you dispute them so they can be corrected. Even if you don’t find any errors it is important to know exactly where you stand if you are potentially going to face questions about it.
2: Plan For How to Reduce Your Debt
Beyond just having a plan will help you get into a better financial position, having a plan that you can share with your potential employer will be a big positive (especially if your credit is a big negative). Having a plan shows the employer that you are taking responsibility for past mistakes.
3: Be Proactive
If you are applying for a job that will entail sensitive financial matters, having a poor credit history will be a bigger factor in your potential employer’s mind when considering you for the job. It might be worth it to introduce the topic of your poor credit history before they even ask (provided you know that they check applicants’ credit history as part of the standard protocol). This might show them you don’t have anything to hide and puts you one step forward in canvassing this negative topic in a positive light.
4: Adjust Your Job Search (if All Else Fails)
If you’re really struggling to find a job because of your poor credit history, then you can try and find a job in a different way or create your own job! There are many creative ways you can earn money that don’t require you to work as an employee for someone else. You can perhaps work as an independent contractor, freelancer or consultant in your network with who you have already built trust. Your options are endless. Don’t let your poor credit history keep you back from building a stronger financial future.
- How to Remove Paid Collections from a Credit Report
- How to Get Approved for a Cell Phone with Bad Credit
- How Many Points Will My Credit Score Increase When I Pay Off Collections?
- How to Check Your Credit Score Without an SSN
- How to Remove Late Payments from a Credit Report
- Why Did My Credit Score Go Down When Nothing Changed?
- How Accurate is Credit Karma?
Ultimately it is possible that you can be denied a job because of your credit history. If you have a less-than-ideal credit history and you think this might influence your job application, the best thing you can do is to prepare for it. Don’t be caught off guard and be ready to tell your potential employer how you are dedicated to sorting out your debt. If it still doesn’t work out there are other avenues and options for you to earn an income. Regardless of what the outcome is, it is always a good idea to know what your credit position is and have a plan to pay off your debt and build towards a better financial future.
Credit score woes? Let the experts at Credit Saint guide you. With their 90-day money-back guarantee, there’s no risk in seeking their help.
Frequently Asked Questions (FAQ)
Can Employers Deny a Job Based on Bad Credit?
Yes, employers can deny a job based on bad credit in certain circumstances. This is more common for positions involving financial responsibilities, access to sensitive information, or in certain industries like banking.
Is It Legal for Employers to Check Your Credit Score?
It is legal for employers to check your credit report (not credit score) in the U.S. with your written permission. They cannot check your credit without your consent.
What Types of Jobs Might Require a Credit Check?
Jobs that might require a credit check often include positions in finance, banking, government, or roles that involve handling money, confidential information, or expensive assets.
How Does Bad Credit Affect Employment Opportunities?
Bad credit can affect employment opportunities if the job requires financial reliability and trustworthiness. It may raise concerns about your financial management skills or risk of fraud.
What is Included in an Employment Credit Check?
An employment credit check includes information about your credit history, such as loan repayment history, outstanding debts, and bankruptcy records. It does not include your credit score.
Can I Be Denied a Job Without Knowing My Credit Was Checked?
Employers must obtain your written permission to check your credit. If they deny you a job based on your credit report, they must provide a copy of the report and a summary of your rights.
How Can I Prepare for a Credit Check When Applying for Jobs?
To prepare for a credit check, review your credit report for inaccuracies, pay down debts, and be ready to explain any negative items to potential employers.
Are Credit Checks Common in All Industries?
Credit checks are not common in all industries. They are typically conducted in sectors where financial integrity is essential.
How Often Can Employers Check My Credit?
Employers can check your credit as part of the pre-employment process and occasionally during your employment, with your consent each time.
What Rights Do I Have If Denied a Job Due to Bad Credit?
If denied a job due to bad credit, you have the right to receive a copy of the credit report used, a summary of your rights, and the opportunity to correct any inaccuracies.