In most states today your employer or prospective employer can use information from your credit report to make employment decisions, like whether to hire, fire, or promote you. Some states currently prohibit this practice, but not all states, and not for all professions. It is important for you to know what your rights are, and what an employer’s obligations are when it comes to credit reports. For example, an employer must get your permission before obtaining your credit report. For more information about how your credit report may be used in employment decisions, read below:
Possibly. Many employers now use the same credit files used by credit card providers and mortgage brokers to determine whether you are the most financially stable and reliable employee for the job. Credit agencies can share your information with those who have a legitimate business need for the information. An employer using your report to determine your eligibility for “employment, promotion, reassignment or retention” is therefore entitled to access. Whether an employer can run a credit check will depend on what state you live in.
The Fair Credit Reporting Act (FCRA) governs the use of credit information in the employment setting. The FRCA is designed to ensure that you are aware of and agree to your credit report being used for employment purposes, and that you are notified promptly if information in a credit report may be used in a negative employment decision. If you are job hunting, you may want to check your credit report with each of the three major credit reporting agencies (Experian, Trans Union, and Equifax). You are entitled to a free copy of your report from each agency every twelve months. For more information, see the official website to obtain your free report at annualcreditreport.com.
Although employers must request your permission before obtaining your credit report, the FCRA does not prevent employers from denying you a job or promotion, or even terminating you on the basis of your negative credit–even if your credit report is incorrect. Some employers have even used an employee’s credit report to find out whether the employee was looking for work with other companies, since the credit report lists all companies who have recently accessed the employee’s credit.
As of 2023, however, at least 11 states have passed legislation that limits an employer’s ability to use your credit report in the employment setting.
- California | Cal. Labor Code 1024.5, et. seq.
- Colorado | CRS § 8-2-126
- Connecticut | Conn. Pub. Act No. 154
- Delaware | Del. Code 19 § 709B
- Hawaii | Haw. Rev. Stat. 378-2
- Illinois | 820 ICLS § 70-1 to 70-30
- Maryland | Md. Code Ann. Labor Law § 3-711
- Nevada | NRS § 613.570
- Oregon | ORS § 659A.320
- Vermont | VT SA No. 154
- Washington | RCW § 19-182-020
In most of those states, it is now an illegal employment practice for an employer to use a credit report in making employment related decisions. There are exceptions in most states that allow certain employers to use your credit report, including financial institutions, public safety officers, and where a credit report could be related to your job duties.
Possibly. Again, this will depend on which state you live in. Under federal law, with your permission, the employer can use the credit check as one of the factors in determining the best candidate for the job. It does not matter whether or not the job has anything to do with handling money, juggling budgets, or similar tasks for which credit information might relate more directly to your fitness for the job.
However, some state laws prohibit employers from using credit check information to deny promotions (California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington). Your employer may not use this information to deny you a promotion.
Yes. The FCRA requires that you give written permission before your employer can access your credit report. An employer who does not obtain your permission before requesting your report has violated the FCRA.
No. The written disclosure that your employer will seek credit information about you must be contained within a separate document used solely for that purpose, with a separate authorization signature required. It cannot be buried in a job application or employee handbook.
No. Once you have given written permission, the employer is not legally required to give any additional notice before actually obtaining the report from a credit reporting agency. Even if you had good credit when you started work, your employment could be at risk if your employer decides to check your credit later, and your credit rating has declined in the meantime.
Without your permission, your employer cannot check your credit report. Your refusal may leave your employer thinking that you have something to hide. Under federal law, there is nothing in that situation that protects you from being terminated or not getting hired by a prospective employer. However, 11 states (California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington) have passed legislation that protect against such discrimination.
Your employer can technically use any information in your credit report any way it wants, as there is no protection against losing your job on the basis of information in your credit report. However, before your employer rejects you for a job based “in whole or in part” on something in your credit report, the employer must give you a copy of the report before turning you down and written instructions on challenging the accuracy of the report. For more information, see question 8.
The FCRA’s notice provision is supposed to give you some opportunity to work with the credit bureaus to ensure that all information in the report is accurate–which you should already be doing if you know there is a problem. Hopefully, your credit file will reflect that you were the victim of identity theft, if that is the case, and your employer will be reasonable and not use that information against you.
However, your employer does not have to give you time to get the information investigated and corrected, and cannot be held liable for taking action against you due to information in your credit report, even if the information is erroneous.
For more information, see the FTC publication: How To Dispute Credit Report Errors.
You may also find this article helpful: How Identity Theft Can Impact Your Job Search
The FCRA requires the three major credit reporting agencies, Equifax, Experian, and TransUnion, to provide you with a free credit report once every 12 months. It is important to check your credit reports once a year because some studies show that nearly one-third of credit reports have mistaken information on them. You don’t need to individually contact all three credit reporters. To review the various ways you can request all three free reports visit the Federal Trade Commission website.
Yes, there are steps you can take to correct mistakes on your credit reports. The first thing you need to do is get a copy of your credit reports, as explained above. Next, write a letter to the credit reporting agency that you believe has recorded a mistake. Include a copy of your report and all documents that help prove what you explained in your letter. Remember to request that the item be removed or corrected. Keep copies and verification that you sent the letter, like a return receipt, certified mail receipt, or copy of the envelope. Additionally, the reporting agencies are required to review your report and your allegation of error. If they agree a mistake was made, you may request that they send the correct information to all individuals that requested your credit report. Finally, you need to write the organization that has provide the credit companies with the incorrect information and explain to them that they are reporting mistaken information to the credit reporting agencies and how you would like them to resolve the issue. Visit the FTC website for more information about disputing mistakes on credit reports.
Yes, in theory. However, it is easy for employers to avoid this requirement by citing some other basis for denying you a job. If an employer wants to reject an applicant based on information they find in their credit report or background check, the FCRA requires employers to provide pre-adverse action and adverse action notices (FCRA §§ 604, 615(a)). In a pre-adverse action letter, employers must include:
- A copy of the Consumer Report on which they relied.
- An FTC document called “A Summary of Your Rights Under the Fair Credit Reporting Act,” which includes written instructions on how the job applicant can challenge the report’s accuracy.
If an employer gives some legal reason for their decision not to hire, however, it is often difficult to confirm the true basis for their decision.
If your employer has decided to take adverse action against you, such as firing you or denying you a promotion, or a reassignment, because of your credit report, it must provide you with an “adverse action notice,” containing the following information:
- The name, address and phone number of the credit reporting agency used;
- notice of your right to obtain another free copy of your credit report, upon request and within 60 days;
- notice of your right to dispute the accuracy of the report with the credit reporting agency; and
- notice that the credit reporting agency did not make the decision to take adverse action against you and is therefore unable to provide the specific reason(s) why the action was taken.
However, as noted above, your employer may give another legitimate reason, or may not give a reason at all, once they are aware of the negative information in your credit report. Even though the employer is supposed to give you the information listed above if information in your credit report influenced the employment decision in whole or in part, it is difficult to prove whether the employer followed the law when making its decision.
Separate preemption provisions in the Fair Credit Reporting Act (FCRA) conflict with each other. As a result, courts have held that the FCRA’s preemption provision, § 1681t(b)(1)(F), prohibits defamation claims against prospective employers or other persons who furnish credit information. (Roybal v. Equifax (E.D. Cal. 2005), Johnson v. JP Morgan Chase Bank (E.D. Cal 2008). At the same time, however, courts allow defamation claims against creditors as long as they allege falsity and malice because of FCRA sections 1671s-2 and 1681h(e). (Gorman v. Wolpoff & Abramson (9th Cir. 2009).
Employers can, however, be sued for actual damages, court costs, reasonable attorney fees, and sometimes punitive damages. The FTC can also impose civil penalties on employers for each violation. Some common examples of FCRA violations include employers failing to provide adverse action notices and creditors reporting inaccurate information. If you believe an employer violated your rights under the DCRA, contact an attorney or file a consumer complaint with the FTC.
As explained above, the FCRA does not provide remedies for individuals who are denied jobs based on credit report information. If the information is inaccurate, you should work quickly to get it corrected. If it is accurate, you should work to improve your finances or consider finding an employer who does not conduct credit checks. If you believe an employer used your credit report as a smokescreen for retaliation or discrimination, consider contacting an attorney. If you live in a state with legislation regarding credit checks by employers, contact an attorney to learn more about your rights.
Refer to question 1 for information on state laws, view the Fair Credit Reporting Act (FRCA) to read the federal law, or visit this article: Pre-Employment Credit Check: A Complete Guide 2023
Employers might check job applicants’ credit reports for several reasons. Credit reports indicate individuals’ financial responsibility. Employers may rely on this to assess the likelihood of theft or fraud by potential employees, especially those who would be handling money at work. They may also look to credit reports as a general indication of a job candidate’s organization and ability to uphold agreements.
When employers check job candidates’ credit, they are limited in what information they have access to. They cannot see your income, credit account numbers, credit score, medical bills, or any identifying information that could be used to discriminate against you. They can see your name and address, your available credit and payment history, any bankruptcies, or liens you have had, and any work history that you self-reported on other credit applications.
No. Credit checks are “soft inquiries” that do not affect your credit score.
If you know you have negative information on your credit report, you may be able to take action to improve what prospective employers will see if they perform a credit check on you. Check your credit report yourself online at AnnualCreditReport.com. Improving credit is a slow process, but you can do so by using automatic payments to pay bills on time, limiting your use of credit, and paying off any outstanding debts. Visit this page for more advice on improving your credit.