Can Employment Background Checks Hurt Your Credit Score?

A 2016 study conducted by CareerBuilder found that an overwhelming 72 percent of companies run background checks on potential hires. A credit history is often included in background checks, which means 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, but they can impact your chances of getting a job.

TL;DR (Too Long; Didn't Read)

If your prospective employer checks your credit history, this will be a soft pull that won't hurt your credit score.

You Have to Approve

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.

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, and neither can other employers. If you're looking for a job on the sly, your secret's safe with the credit bureaus.

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.

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