Do Employer Credit Checks Damage Credit Scores?

Myths and facts about employer credit checks.

ByABC News
July 5, 2013, 11:39 AM
Will an Employer Credit Check Hurt Your Score?
Will an Employer Credit Check Hurt Your Score?
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July 5, 2013 — -- We recently received this question on the blog on the subject of employer credit checks:

Why is your credit score affected negatively when you apply for a job and the background check is done?

When you apply for a job, it's not uncommon for employers to request a credit or background check. This is especially true with jobs that require you to work with money or sensitive financial/security information. And considering the important role credit plays in our society, much less our individual financial lives, worrying about the impact of inquires on your credit score is completely understandable. In this case, however, you can rest a little easier because credit checks for employment screening purposes won't impact your credit score in any way whatsoever. When it comes to your credit score, it's the type of inquiry that matters.

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Employment Inquiries

Credit checks for employment purposes are considered "soft" inquiries, which are ignored in your credit score calculation. Hard inquiries, those that are a result of an application for credit or other type of service (phone, utility, cable, etc.), show that you are actively searching for credit. These are the inquiries you need to worry about, they're the ones that count. (In fact, the only person who can see soft inquiries is you, when you access or pull your own credit reports.) Too many inquiries in a short period of time will negatively impact your score. But the good news is that inquiries — while reported in your credit reports for two years — only count towards your credit score for the first 12 months.

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The Myth: Credit Scores & Employment Screening

Our reader's question brings up an important subject that is often misrepresented and grossly misunderstood: the use of credit scores by employers for employment screening purposes. With how often this myth is perpetuated by the news media, celebrity personal finance experts, and even government officials and legislators, it's easy to understand why there's so much confusion around the subject. The reason for the confusion? It all revolves around the common misconception that credit reports and credit scores are one and the same. They are not.

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Employer's Right to Access Your Credit Reports

In recent years, some states have passed legislation that limits when employers can use credit reports but under Federal law, employers are legally within their rights to use credit report data for employment hiring and screening purposes. Under the Fair Credit Reporting Act, employers have the right to access your credit report information for employment screening purposes. The key word here is "credit report." Before they can do so, however, the potential or current employer must first get prior written authorization -- from you.