Can an employer pull your credit report?

Can an employer pull your credit report?

You've survived the final interview for a great job with an employer you can't wait to work for. Then, a piece of mail arrives that dashes your dreams and sends you back to the help-wanted ads. It's called an "adverse action letter," the legally mandated communication that employers must use to inform applicants that information from a credit report caused them to revoke an offer or end the review process.

If this happened to you, you're not alone. When the Society for Human Resource Management (SHRM) studied the issue in 2010, researchers found that about 13 percent of organizations used credit checks as a filter for all job applications. Nearly half of organizations reserved credit checks for job finalists.

Newspapers and talk shows have chronicled tales of qualified job seekers who can't find work because of their credit reports. For instance, The New York Times documented how an upscale shoe salesman's brush with bad health during the recession left him with unpaid bills that disqualified him from many retail jobs. Likewise, an experienced banker told CNN Money he couldn't find work after a short sale on his home during the financial crisis showed up on his credit report.

Credit checks let employers make lazy, hasty decisions

Checking a job applicant's credit makes sense for some professions, especially in businesses where workers handle cash or sensitive information. You probably wouldn't want to hire a bank teller who might be tempted to pay off some overdue debt with customers' deposit money.

Despite anecdotal evidence of "false positives" and bad outcomes, many hiring managers still use applicants' credit reports to streamline the evaluation process. Thanks to online job applications and email, a manager might receive resumes from hundreds of viable candidates for a single opening. For the majority of American companies, using credit reports as a screening tool makes the hiring process far more manageable.

Still, the process doesn't play fair for job seekers with strong skills and bad fortune. Long before her successful Senate campaign, Elizabeth Warren explained to NPR's Terry Gross that fraud, carelessness and clerical errors create frequent problems for consumers. As many as 1 in 4 credit reports, Warren told Gross, contain errors that could cause substantial damage to a credit score. That, in turn, can keep your application from ever reaching the desk of a hiring manager.

How to reduce your risk of rejection from employer credit pulls

First, perform the same kind of cleanup on your credit report during a job hunt as you would if you wanted to buy a house. Request free credit reports from each of the three major credit agencies from AnnualCreditReport.com. Review each report, line-by-line. Challenge any errors and request their immediate removal from your credit reports. Dispute any debts that have transferred to third-party collections agencies, so you can get at least a brief period while collection agencies attempt to verify your debt from their records. Append any problematic entries with a consumer statement that explains how the debt got there.

Second, prepare a strong rebuttal to the worst possible story your credit report could tell a potential employer. According to the SHRM, 87 percent of employers allow rejected candidates at least a brief opportunity to explain any adverse findings on a personal credit report. If you can show that your past financial challenges bear no reflection on the quality of work you would contribute to an organization, you might convince a hiring manager to give you a shot.

State lawmakers ponder credit check bans

According to data collected in the spring of 2013 by the National Conference of State Legislatures, just 10 states restrict employers from using applicants' credit information to determine job eligibility:

  • California
  • Colorado
  • Connecticut
  • Hawaii
  • Illinois
  • Maryland
  • Nevada
  • Oregon
  • Vermont
  • Washington

Another 25 states have debated draft legislation seeking to curb or prohibit the practice. However, with so many lawmakers squabbling over tax dollars and high profile political issues, it's hard for the movement against employer credit checks to gain traction in most state capitals. Unless you live in one of the states mentioned above, you'll need to polish your credit report -- as well as your resume -- the next time you're looking for a new job.

  • 5 Ways to Avoid Credit Scams

    Con artists take advantage of consumer interest in credit reports and credit scores.

  • 5 ways to outsmart cyberthieves and protect your credit

    Some tips for using technology to help protect your financial accounts and credit score.

  • 6 foolish reasons people don't check their credit

    Make 2015 the year you stop avoiding your credit score and credit report.

  • 6 identity theft facts you must know

    Crimes against identity are increasingly common and terrifying. With increased knowledge about identity crimes consumers can protect themselves. WisePiggy dives ...

  • 6 ways to protect your parents from ID theft and fraud

    Seniors are targets of scams and fraud. Here's how to keep your aging parents safe.

Online Support What can I help you with today?
Hi, looks like you're exploring financial services. What kind of service are you interested in?
typing …
What kind of credit card are you interested in
typing …
It looks like you are searching for a better mortgage
typing …
Let me help you customize your rates. Just tell me where you live?
typing …
Perfect! I've found mortgage lenders in your area.
Unfortunately; I couldn't find any mortgage listing for you at the moment.
typing …
Are you looking to refinance or purchase a home?
typing …
Excellent! I've found credit cards for you. Check them out on the right.
Unfortunately; I couldn't find any cards for you at the moment.
typing …
Did you know I can help you narrow your search based on your credit score? Just let me know what you think credit is rated.
Please select a different type of card.