Can Employment Background Checks Hurt Your Credit Score?

Employer credit checks are soft inquiries that don't affect your credit score.

Employer credit checks are soft inquiries that don't affect your credit score.

The Society for Human Resource Management found that about half of employers looked at some or all job applicants' credit histories as part of pre-employment background checks in 2012. The next time you apply for a job, there's a definite possibility that your prospective employer will go digging through your credit history. These background checks won't hurt your credit score.

You Have to Allow It

Unless state law specifically prohibits it, prospective employers can check your credit report as part of a background check before or after offering you a job, but you have to give them permission. The Fair Credit Reporting Act, the federal law that covers credit reports, is specific about this: If you don't authorize an employer, in writing, to see your credit report, then the credit bureaus can't give that employer your report. Of course, if you refuse to allow a credit check, the prospective employer may be unwilling to hire you.

The Hard and Soft Truth

Whenever anyone orders a copy of your credit report from a credit bureau, the bureau makes a note of it on your credit report. These requests are called "inquiries," and they come in two varieties: hard and soft. Hard inquiries are those that stem from credit applications. Apply for a credit card, a mortgage or a car loan, and the lender will undoubtedly check your credit. This goes down as a hard inquiry. Soft inquiries occur when someone checks your credit for reasons that have nothing to do with applying for credit. Credit checks by employers appear on your credit report as soft inquiries.

Not Counted in Scores

Only hard inquiries can affect your credit score. Soft inquiries, including those by prospective employers, are not a factor in your score. There's a reason for this. A hard inquiry means you've applied for credit, which indicates there's a good chance you'll be taking on new debt in the near future. That can affect your credit risk -- and credit scores are a measure of credit risk. By contrast, soft inquiries don't represent an attempt by you to add debt, so scoring formulas don't consider them.

So Soft, They're Invisible

Soft inquiries aren't just left out of your credit score. They're also not included in the credit reports that lenders see when they order your report. Soft inquiries are viewable only by you. Order a copy of your own report, and you can see everyone who has checked on your credit for any reason, but soft inquiries don't appear on reports the credit bureaus send to anyone else. Lenders can't see them. Neither can other employers. If you're looking for a job on the sly, your secret's safe with the credit bureaus.


About the Author

Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.

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