When your credit history may negatively impact your employment opportunities

Employer Credit Checks: Changing Laws and What Job Seekers Need to Know

Due to new regulations in various states and cities, employers are now less likely to review your credit history during the hiring process. However, there are still circumstances where your credit report may be considered.

A background check can jeopardize a job opportunity if employers find concerning information. While companies often request extensive details about a candidate’s history, more jurisdictions are limiting access to credit reports for employment purposes.

Recently, New York became the eleventh state to restrict employers from using credit reports when making hiring or promotion decisions, except for specific job categories. This law will take effect on April 18.

Other states with similar, though not identical, restrictions include California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington. Additionally, several cities—such as New York City, Washington D.C., Chicago, Madison (Wisconsin), Philadelphia, and Cook County (Illinois)—have enacted comparable local ordinances.

New York’s law is notable because it may apply even if a New York resident applies for a job in another state, potentially extending its protections beyond state lines. As attorney Stephen Fuchs from Littler Mendelson explains, this could mean broader coverage for New Yorkers seeking employment elsewhere.

With more states enacting these restrictions, companies are increasingly reconsidering whether to check credit histories at all, even in areas where it remains legal. As Fuchs told CNN, national employers often prefer to adopt consistent practices across all locations, and the growing number of restrictions has prompted many to question the necessity of credit checks.

When Credit Reports Are Still Used

Despite these new rules, employers can still access credit reports for certain positions that are exempt under state laws. These typically include roles in law enforcement, jobs involving access to sensitive information or national security, and positions that handle company finances or trade secrets.

In the financial sector, credit checks are often permitted for jobs subject to regulatory oversight. The rationale, according to Fuchs, is that individuals with significant debt or poor credit may be at higher risk for financial misconduct such as theft or fraud.

What Employers Look for in Credit Reports

There is no universal set of credit report issues that will automatically disqualify a candidate. Credit history is just one aspect of a comprehensive background check.

According to Melissa Sorenson, executive director of the Professional Background Screening Association, employers generally focus on the amount and recentness of negative information, such as overdue debts.

Rima Hopkins, an HR expert at SHRM, notes that employers may be concerned about accounts that are seriously overdue, sent to collections, or written off, especially for jobs involving financial responsibilities. However, employers are required to follow strict procedures, including giving candidates a chance to review and respond to any concerns before making a final decision. They must also ensure that any use of credit information is relevant to the job and not discriminatory.

Hopkins adds that organizations often disregard medical debt or student loans unless they are directly related to the job in question.

How to Protect Yourself During the Job Search

• Employers cannot conduct a background check or access your credit report without your written permission, and these checks usually occur only after a job offer is made.
• Before applying, review your credit reports from all three major bureaus to ensure there are no errors.
• If your credit report contains legitimate negative information, be upfront with potential employers and explain the circumstances, as recommended by Sorenson.
• The federal Fair Credit Reporting Act grants you specific rights regarding employment background checks. Employers must provide you with a copy of any report that influences their decision, giving you a chance to dispute inaccuracies.
• Check your state’s fair credit reporting laws, as some states offer additional protections, such as the right to request a copy of the background report ordered by a prospective employer.