Why Do Some Employers Check Your Credit?

Checking a job applicant’s credit history as part of the hiring process is becoming increasingly more common in Canada. If you’ve been asked to consent to a credit check, you may be wondering why this is necessary and how it might affect your chances of getting the job.

Some employers check an applicant’s credit history to review their financial management skills, their organizational skills, and their overall trustworthiness. Employers want to avoid hiring someone who could make poor financial decisions on behalf of the company or engage in criminal activity for their own financial benefit. 

You may face an employer credit check for any job in any industry. That said, employer credit checks happen most often for financial sector jobs, government jobs, senior positions, or positions where an employee is given direct responsibility over the company’s finances. 

If you’ve been asked to consent to a pre-employment credit check, you should be aware of what employers are looking for in your credit report. Here are 3 main attributes a potential employer is looking for when checking your credit:

• Organization and accountability

• Ability to take on financial responsibility

• Trustworthiness

1. Organization and Accountability

Employers want to know that their potential hire is organized. They may look at your bill payment history as a sign of your organizational skills. If your credit history shows an alarming number of missed or late payments, employers might think that you don’t respect deadlines, are forgetful or unorganized, and don’t have a sense of accountability. 

2. Ability to Take on Financial Responsibility

Employers may want to see how well you manage finances, especially if your role involves having direct access to the company’s finances. If you’ve taken on a lot of debt without a demonstrated ability to pay it back, employers might not think that you’re a good fit for the role. Employers are looking for someone who will have good judgement, make sensible financial decisions, and spend the company’s money appropriately. 

3. Trustworthiness

Overall, employers are looking to hire someone who isn’t likely to engage in financial criminal behaviour. Having low credit doesn’t say anything directly about a person’s morals and value, as low credit can just be a sign of temporary financial hardship. However, someone whose credit report shows a significant number of collections, judgements, bankruptcies, or other negative information is more likely to commit theft or fraud.

What Information Do Employers See When Checking Your Credit?

 When employers check your credit, they see a modified version of your credit report that provides a limited, high level overview of your credit history. The information that employers can see when checking your credit includes: 

• Your approved credit, such as credit cards, loans and mortgages

• The amount of debt you owe

• Any late or missed payments

• Whether you make payments on time

• Hard inquiries made when you applied for credit 

• Whether you’ve ever filed for bankruptcy

• Any court decisions against you related to credit

• Any accounts closed due to money owed

• Any liens on your property

• Any fraud alerts 

This modified credit report does not include your actual credit score. The report also won’t show any other soft credit inquiries on your credit history. Employers won’t be able to see whether other potential employers have recently checked your credit, meaning they won’t know if you’ve applied for other jobs as well. This is helpful if you’re job-hunting and exploring your options.

It’s important to note that credit reports reveal some personal information, such as your year of birth. Employers aren’t allowed to use this information to influence their hiring decision — that would violate your rights for equal employment opportunities. 

However, if you’ve been asked to give consent to have your credit checked, you’re more than likely already in the last stages of the hiring process and have been given a conditional offer. In this case, information like your age would have no weight on the ultimate hiring decision — the only information that could result in a rejection would be your actual credit history. 

Will An Employer Credit Check Hurt Credit Score?

Employment credit checks are different from other credit checks, such as when you apply for a credit card or a loan. When a potential employer checks your credit, it’s known as a soft credit inquiry, meaning the inquiry doesn’t affect your credit score. You don’t have to worry about job-hunting impacting your credit score!

Is It Legal That an Employer Checks My Credit?

Checking a potential employee’s credit history as part of the hiring process is completely legal in Canada. In fact, credit checks are actually required by law for anyone applying for a job in the government. 

That being said, the employer cannot check your credit without your written consent. The notice must be clear and easily understandable, so there’s no chance that you might misinterpret it.

Before you sign anything, read the terms carefully and make sure you know if you’re agreeing to a credit check. Ideally, the employer should verbally ask for your permission before having you sign a written document.

Can an Employer Deny Me a Job Because of My Credit History?

Pre-employment credit checks are a controversial topic, as not everyone believes them to be a fair evaluation of a job applicant’s fit for the role. Nonetheless, a potential employer can retract a conditional job offer based on what they find in the applicant’s credit history. 

If this is the case, the employer must let you know that they chose not to hire you because of your credit history. In some cases, you may have an opportunity to appeal their decision by explaining the reasons for your poor credit. 

If you’re starting your job-hunt, you should download your credit report and review it before you receive any conditional offers. Review your credit report to find negative information that might exist and could trigger red flags to employers. Missed payments, accounts in collections, and other items may sway your potential employer’s hiring decision.

If you know you have bad credit history or no credit history at all, it’s best not to wait until a potential employer has reviewed your credit report to give your explanation. You should read your credit report beforehand to anticipate any red flags. Once you know that an employer may find some red flags on your report, it may be a good idea to give them some notice before you consent to a credit check. 

If you’ve received a conditional job offer and have been asked to consent to a credit check, let the employer know what issues they can expect to find in your credit report and offer an explanation. For example, if your report shows a period of late payments because you were dealing with a family emergency, explain that this is the case. This way, the employer won’t have an opportunity to come to their own conclusions about how competent or trustworthy you may or may not be. 

Be sure to also explain what actions you’re taking to improve your credit — this will show the employer that you’re proactive, take responsibility, and are willing to put in the work to fix your situation. 

How Can I Prepare in Advance for an Employment Credit Check?

In order to maximize your chances of getting hired for the job you want, it’s best to maintain good credit, or at the very least know what your credit report shows, so you can come prepared to provide an explanation for any red flags your potential employer might find. 

It’s a good idea to review your credit report at least once a year. You can use Borrowell to check your credit report for free without hurting your credit score. This will allow you to check for any mistakes in your credit report. Credit bureaus are susceptible to human error, so if you find any mistakes, you can take the proper steps to dispute errors on your credit report.

Checking your credit report will also show you what potential employers might find concerning. You can then be prepared to answer questions about what happened and what you’ve done to improve your circumstances. 

When you check your credit well in advance of a potential job opportunity, you can also take action to improve your credit score and fill your credit report with more positive information. When the most recent sections of your credit report show approved credit accounts and payments made on time, the employer will be less likely to focus on concerning information from the past. 

Regardless of what industry you’re hoping to work in, it helps to check your credit report often, know exactly what’s in the report, and be ready to speak about it to a potential employer. Best of luck with your job hunt!