AccuSource Blog

More Than Just a Number: A Primer on Employment Credit Reports

credit-check-1One of the less standard areas of employment background screening involves the use of credit reports. While most consumers are familiar with the use of credit reports in housing and the lending industries, credit reports can also be helpful in the employment context.


Why Employers Run Credit Reports

Most employers who request credit checks do so for applicants or employees who will have access to money, such as positions involving finances or fiduciary duty. A credit report can demonstrate the applicant’s reliability and trustworthiness in those areas.

Employment credit reports differ slightly from financial credit reports. As with financial credit reports, they contain identification information, such as Social Security number, names the subject has used, and addresses where the subject has lived. Employment credit reports also contain information about various types of debt belonging to the subject as well as payment history. Unlike a financial credit report, the employment version does not disclose the applicant’s credit score.


Hard Inquiries vs. Soft Inquiries

Inquiries, soft or hard, are authorized requests to see your credit report. But, according to, the similarities end there.

Soft Inquiries

A soft credit inquiry is a more routine credit check that can be done without your permission. Examples include when:

  • A potential employer checks your credit as part of a pre-employment background screening
  • A lender you currently do business with requests your report to make sure you’re still creditworthy
  • You check your own credit report

The key takeaway for soft inquiries is that they won’t affect your credit score because they’re not applications for credit.


Hard Inquiries

A hard inquiry happens when a potential lender requests your credit report to help evaluate whether to offer you credit. Examples include applying for a:

  • Mortgage
  • Car loan
  • Credit card


Why inquiries matter

Though soft inquiries will show up on your credit report, they will have no effect on your perceived creditworthiness. Hard inquiries, on the other hand may be factored into credit scoring models. Though hard inquiries are generally seen to have a negative effect on credit scores, the impact of each inquiry isn’t usually too big. However, too many hard inquiries on your credit report may drag your credit score down, especially over the shorter run.

Here’s the good news on hard inquiries: they’ll fall off your credit report after 2 years. Also, if you make a certain amount of hard inquiries within a short period of time when you’re loan shopping for a single purchase (like a mortgage), credit scoring models will generally consider all those hard inquiries to be one inquiry – they don’t want to penalize you for shopping around for the best deal.

Bottom line: don’t worry about soft inquiries but keep an eye on your hard inquiries. 



Credit Checks and the FCRA

Employment credit reports are subject to the Federal Fair Credit Reporting Act (FCRA) as well as state and local laws. As with other types of background screening reports, employers must follow the FCRA’s disclosure and authorization requirements prior to requesting the report. Additionally, the FCRA imposes time limitations on the information that can be reported, limiting the reporting of bankruptcies to no more than 10 years and other adverse information to no more than 7 years.

Other FCRA obligations also apply, including pre-adverse and adverse action requirements as well as providing the applicant the ability to dispute inaccurate information contained in the report.


State and Local Laws

Employers must also be careful to comply with any state or local laws regarding the use of credit reports. Some states and cities are concerned with the use of credit reports against applicants whose position does not involve finances or confidentiality. These jurisdictions have limited the use of credit reports for applicants to positions of trust or financial access. States with such restrictions include California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington.

Some cities have also passed legislation restricting the use of credit reports, including Chicago, New York City, and Philadelphia. Because other jurisdictions are also considering similar legislation, AccuSource recommends consulting knowledgeable counsel when requesting credit reports in an employment context.



Credit Checks and the EEOC

Furthermore, employers must also consider the Equal Employment Opportunity Commission’s stance on credit reports. While the EEOC does not prohibit them, employers must be aware of the risk of disparate impact against minorities if they do not use credit checks uniformly.

Employers should also take into consideration any extenuating circumstances that may have led to negative information on a credit report, such as economic regressions and depressions, periods of unemployment, and other personal circumstances disclosed by the applicant.


While credit reports can be useful tools, employers must ensure they can legally obtain them as well as properly use them. If you would like AccuSource to provide a complimentary review of your current background screening compliance program, please contact us at

Jennifer Daimon, Esq. | CIPM

Jennifer Daimon, Esq. | CIPM

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