Employer credit checks are controversial. Opponents say job applicants’ credit histories have no relation to job performance. On the other hand, some people argue that credit checks help employers assess the fraud risk an employee poses to the company. For example, someone with a history of late payments may not be an ideal candidate for a finance position. Whether or not you think they’re a good idea, employer credit checks happen at some companies, and you should know how they can affect you.
The practice goes beyond reviewing new hires. Some companies use credit reports as part of employee evaluation. Under the Fair Credit Reporting Act, an employer only has to give a one-time notice and receive permission to request credit reports at any time, according to employment attorney Spencer D. Cohn.
“Typically the employer will ask permission when you apply for the job. A lot of times, the employer will hire you before the background check is completed and then after you’ve worked for a month, find something and let you go,” Cohn said in an email.
Background checks, including employer credit checks, vary by job and location, so you may not have to deal with it. (Some states limit the practice.) Still, it’s possible you could lose your job because of bad credit.
“[O]ne might never know whether this is what caused the separation from employment,” Cohn wrote. “For instance, the employer can say instead, ‘I’m reducing payroll’ or ‘I’m not happy with your performance’ as the reason why you are being terminated.”
If you’ve given an employer permission to check your credit report, make sure you get a look at it first. Review your free annual credit reports for accuracy and dispute any errors you find. If you have any accurate, negative information on your credit report, you may want to explain it to your employer before they draw their own conclusions.