Keith Mack
Employers may perform credit checks on job candidates before making employment offers, especially for positions that involve handling money or sensitive data. However, there are laws and regulations in place, such as the Fair Credit Reporting Act (FCRA), that dictate when and how employers can lawfully run a credit report check. These laws vary depending on the state, industry, and position for which one is hiring. This article will explore the legal parameters surrounding pre-employment credit checks and provide insight into why employers may choose to conduct them.
| Characteristics | Values |
|---|---|
| Credit score visibility | Employers cannot view an applicant's credit score |
| Credit report visibility | Employers can view a modified version of an applicant's credit report |
| Applicant's consent | Employers must notify applicants and get their written consent before running a credit check |
| Adverse action notice | Employers must notify applicants if they are not hired because of their credit report |
| Pre-adverse action notice | Employers must notify applicants if they intend to reject them based on their credit report |
| Time to respond | Employers must wait a reasonable period before taking action to allow applicants to explain red flags or fix mistakes |
| Applicant's rights | Applicants have the right to review their credit report and dispute any inaccuracies |
| Credit history | Employers can view up to seven years of an applicant's credit history, or up to ten years if the job commands a salary of $75,000 or more |
| Credit inquiries | Employers can view a list of parties who have accessed an applicant's credit report in the last two years |
| Collections and bankruptcies | Employers can view any history of bankruptcy and overdue debts sent to collection agencies |
| Applicant's identity | Employers can use credit reports to verify an applicant's identity |
| Applicant's financial distress | Employers can view signs of financial distress, such as excessive debt, which could indicate the potential for fraud or theft |
| Applicant's financial responsibility | Employers can view an applicant's payment history to assess their financial responsibility |
| Applicant's marital status | Employers cannot view an applicant's marital status |
| Applicant's account numbers | Employers cannot view an applicant's account numbers |
| Applicant's birth year | Employers cannot view an applicant's birth year |
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What You'll Learn
- Employers must notify and get written permission from the applicant
- The employer must give a warning before rejection based on the credit report
- The employer must wait a reasonable period before proceeding
- The employer must notify the applicant of the final decision to reject
- Credit checks are banned in some US states and cities
Employers must notify and get written permission from the applicant
In the United States, employers intending to run credit checks on applicants must notify them and obtain their written consent as part of the application process. This is in accordance with the Fair Credit Reporting Act (FCRA), which protects consumers' privacy in the information that credit reporting agencies collect and report.
The FCRA requires that the notification be "clear and conspicuous" and not mixed in with other language. This means that the notice and authorisation must be set forth in a separate document that does not include other information. This gives applicants the opportunity to explain or dispute any negative information in their credit report in advance. Although applicants have the right to refuse consent to the employer's request, the employer is also within their rights to reject the application on that basis.
If an employer decides not to hire an applicant based on something in the credit report, it must send a notice stating its intention to take "adverse action". This notice should include the name and contact information of the credit reporting agency (CRA) that conducted the credit check, a statement that the CRA did not make the decision not to hire the applicant, and an explanation of the applicant's right to receive a free copy of the credit report within 60 days.
It is important to note that some states and localities have passed laws prohibiting employers from pulling credit reports or restricting how and when employers may use them in hiring or promotion decisions. These laws override federal FCRA laws. Therefore, it is advisable to check the specific laws in your state or city.
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The employer must give a warning before rejection based on the credit report
An employer can lawfully run a credit report check only after notifying the applicant and receiving their written consent. This is a requirement of the Fair Credit Reporting Act (FCRA), which also mandates that the notification be "clear and conspicuous" and not buried within other language.
If an employer intends to reject an applicant based on their credit report, they must send a "pre-adverse action notice," which includes a copy of the report used and a summary of the applicant's rights. This gives the applicant an opportunity to explain any red flags on the report or dispute any incorrect negative information. The employer must then wait a reasonable period, usually three to five business days, before making a final decision.
After taking adverse action, the employer must send a final notice, known as a post-adverse action notice, providing the name and contact information of the credit report agency and explaining the applicant's rights under the FCRA.
It is important to note that some states and localities, such as New York City, have passed laws prohibiting employers from pulling credit reports or restricting how and when they can use them in hiring decisions. In such cases, the state laws override the federal FCRA.
While a credit report check is a common step in the hiring process, it is just one of many factors that employers consider when making hiring decisions.
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The employer must wait a reasonable period before proceeding
In the United States, the federal Fair Credit Reporting Act (FCRA) outlines the legal rules that employers must follow when checking credit reports during the hiring process. While the FCRA allows employers to consider credit reports, it also provides employees with certain rights.
One such right is that the employer must wait a reasonable period—usually three to five business days—before proceeding with any adverse action based on the credit report. This waiting period gives the employee an opportunity to explain any red flags on the report or dispute any inaccuracies. For example, if there is negative information on the credit report that is incorrect, the employee has the right to fix the mistakes with the reporting company.
The FCRA also requires employers to notify employees and obtain their written authorization before requesting their credit report. This notice must be separate from other documents and clearly state that the credit report may be used in making hiring decisions. If an employer intends to reject an applicant based on their credit report, they must send a "pre-adverse action notice," including a copy of the report used and a summary of the applicant's rights.
It is important to note that some states and localities have passed laws that restrict or prohibit employers from pulling credit reports or using them in hiring decisions. These laws override the federal FCRA, so it is essential to check the specific laws in your state or city.
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The employer must notify the applicant of the final decision to reject
In most states, it is legal for employers to run credit checks on prospective employees, especially for positions that involve handling money or sensitive data. However, some states and localities have laws prohibiting or restricting employers from pulling credit reports or using credit history in hiring decisions.
If an employer intends to reject an applicant based on their credit report, they must notify the applicant of this decision and send a pre-adverse action notice. This notice should include the name and contact information of the credit reporting agency (CRA) that conducted the check, a statement that the CRA did not make the decision, and information about the applicant's right to receive a free copy of the credit report within 60 days. The employer must also give the applicant a reasonable amount of time (usually three to five business days) to explain any red flags or fix any mistakes in the report.
After the applicant has been given time to respond, the employer must notify the applicant of its final decision to reject them for the job. This final notice should also include the name of the credit reporting agency used and information about the applicant's right to receive their own free copy of the credit report.
It is important to note that employers cannot access an applicant's credit score, only a modified version of their credit report, known as an "employment credit report." This report contains a summary of the applicant's credit history, including payment history, outstanding debts, bankruptcies, and other relevant information.
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Credit checks are banned in some US states and cities
Some cities have also restricted credit checks, including New York City, Chicago, and Philadelphia. New York City has one of the most restrictive credit check bans in the country, with private employers unable to use credit checks unless there is a specific job-related exemption or legal requirement. Chicago's ban, enacted in 2012, exempts banking, insurance, and debt collection jobs from credit check requirements, while Philadelphia's ban includes no exceptions for financial institutions or law enforcement.
The bans are motivated by concerns that credit checks create barriers to opportunity and upward mobility, exacerbate racial discrimination, and invade privacy. Research shows that credit checks disproportionately impact low-income workers and minority job seekers, who tend to have lower credit scores and are more likely to face economic instability.
Even in states without restrictions, it may be wise for employers to limit the use of credit data to relevant positions to avoid appearing discriminatory. Compliance with the laws is critical, and employers must understand the rules and restrictions in their respective states and cities.
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Frequently asked questions
No, employers cannot see your credit score. They can, however, pull a modified credit report, which will have details about your identity, accounts, and any bankruptcies or accounts in collections.
An employer can run a credit check on you when you are applying for a job or when you are being considered for a promotion. Credit checks are usually performed as the final step in the hiring process.
An employer who runs a credit check will typically see the same information a lender would, with the exception of your credit score and date of birth. This includes your payment history, debt, and any bankruptcies.
Yes, you can be denied a job because of your credit history. However, you have rights under the Fair Credit Reporting Act (FCRA). Employers must notify you if they intend to reject you based on your credit report and send you a copy of the report used.
Yes, you can technically refuse to consent to an employer's request to run a credit check. However, the employer is also free to reject your application based on your refusal to consent.
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