State & Federal Laws That Protect Employees From Credit Screening

Whether you’re in the market for your first job or a better opportunity, it’s likely come to your attention that some employers require a credit screening before extending an offer.

It is not without reason that employers want to look at prospective employee credit reports. An individual’s credit can give employers a “snap-shot” into their payment history and trends, giving the viewer insight into a person’s habits, level of financial responsibility, and sometimes their trustworthiness. This is particularly relevant in a position that requires the handling of proprietary information.

Luckily, you do not need to worry about just any employer pulling credit reports.

There are strict guidelines for employers who want to pull credit. Federal and State regulations have been put in place to protect individuals and companies from discrimination and unfair employment decisions being made based on credit.

Individuals in the market for a new job should understand the credit reporting laws of the state they reside in (or are looking to work in) and the federal credit reporting laws of the United States. Most states have their own set of laws that takes federal legislation a step further in protecting employees

The Fair Credit Reporting Act (FCRA) is a piece of federal legislation.

If an employer’s state law permits the pulling of credit on employment candidates they must follow the FCRA which requires employers to:

  • Have the applicant’s written consent to pull credit reports.
  • Provide the employee with the name, address, and phone number of the company that supplied the credit report.
  • Notify applicant that employment may be contingent on information in their report.
  • If the candidate is rejected based on their credit, an official notice must be provided along with a copy of their “Summary of Your Rights Under the Fair Credit Reporting Act” from the Federal Trade Commission, and a copy of their report that was pulled.
State law trumps federal law

Each State has their own set of laws and protections for credit screening of job applicants. Some states prohibit the majority of employers from pulling credit at all and others limit how employers can use the reports or limit credit employment decisions to certain professions. Employers must follow the law of state they reside in.

These 12 states have the tightest laws in place that protect job candidates from credit screening:

  1. California
  2. Colorado
  3. Connecticut
  4. Delaware
  5. Hawaii
  6. Illinois
  7. Maryland
  8. District of Columbia (DC)
  9. Nevada
  10. Oregon
  11. Vermont
  12. Washington

As of April 2015, New York City, is the only city to pass the strictest legislation in regard to employment credit screening. According to an article by CNN Money, this bill is another step in protecting job seekers from discrimination based on their credit history because in order for one to improve their credit, they need a chance in landing a job.

Most recently, the New York City Council voted to ban employers from seeking salary history information from job applicants. This is another move by the NYC Council to help protect employees/job seekers from being stuck in low-paying jobs. This measure is set to go into effect October 2017.

There are exemptions and some jobs that are required by law to pull credit

Many states have lengthy provisions, exemptions, and multiple amendments to their employment credit screening laws.

Some common exemptions are:

  • Positions of fiduciary trust.
  • Certain managerial or executive positions, where employee is given the power to enter into contracts, hold business credit/debit cards or account information, or manage payroll.
  • Financial positions where employees manage, handle, or have frequent access to confidential consumer information.
  • Some states only allow credit report screening after a conditional employment offer has been extended. In other words, employers cannot ask about credit during their initial interviews, but may inform employees that final approval of employment will be based on credit screening.
  • Some states allow credit screening of public service officers, a position with the state department, or other positions where federal laws requires screening of credit history.

If you would like to find out about the state laws protecting you, here is a full detailed summary of each state’s credit employment law.

Credit Report vs. Credit Score

Employers do not pull your credit score, if your employer is authorized to pull credit they will be viewing your credit report. It will not be the same copy that lenders use to make credit decisions; it’s a different version intended for employment purposes.

Your credit score is a numerical representation of your risk level as a customer. For instance, your FICO Mortgage Score is commonly used by lenders in making credit decisions. Many lenders have a threshold that your credit must meet in order to be approved, usually that score is around a 620 – 640, the higher your score the lower your risk and the lower your interest rate. The score is tabulated based on the information in your reports and employers have no need to see this number.

Your credit report provides a list of all the accounts and lines of credit that you have in your name. As well as, your payment history, debt balance history, public record information, collection/delinquent accounts, bankruptcies, property or tax liens; basically any information that gets reported back to the personal credit reporting bureaus and is pertinent to your risk level as a borrower, is included in your reports.

Review your credit reports (and scores).

According to the FCRA, each consumer credit bureau is required to provide a free credit report every 12 consecutive months, as requested by the individual. While these reports can be very informative and educational, be aware that they do not include your credit scores. If you have plans to apply for a loan, financing, mortgage, open a line of credit, or even start a business, it’s best to review your Mortgage FICO credit scores. These must be purchased but are closest to what your lender will use to access risk.

If you notice any inconsistencies or negative information on your reports, take advantage of our free credit consultation.


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