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Background checks are becoming increasingly common as businesses, organizations, and individuals try to safe guard against threats like theft and violence.
One of the most common reasons people are asked to consent to a background check is to secure employment. 98 percent of employers conduct background checks in their pre-hiring process according to a recent survey by security consulting firm Endera.
If a potential employer, or any other organization or individual, has asked you to consent to a background check, you may wonder how a background check will affect your credit score.
A background check won’t hurt your credit score. But let’s dig deeper to understand the relationship between a background check and credit score.
Why Do Employers Run Background Checks?
Employers frequently use background checks to determine if a candidate is a good fit for a specific position as well as the company or organization as a whole. In practice, background checks can help an employer identify an individual who may represent a risk, for example to other employees, the budget, or even the brand or social persona.
When a potential employer runs a background check on a candidate, they can access a variety of information, including the individual’s driving record, criminal record, education, and court judgements.
But That’s Not All
Some background checks can uncover facts about your financial history, including your credit history. If you’re among the one-third of Americans who have overdue debt, the thought of an employment background check may have you nervous.
The good news is that you need to explicitly consent to an employer background check (though refusing may not bode well). The use of background checks to delve into a candidate’s credit history is declining as many states (CA, CO, CT, DE, HI, IL, MD, NE, OR, VT, WA) have moved to restrict the use of background checks for employment purposes.
However, despite state restrictions, there are exceptions to the rules. You can find a list of these restrictions on your state’s Office of Consumer Affairs or employment agency. Exceptions usually focus on the job type, with a variety of states making exceptions when job candidates are being screened for managerial positions or positions that are closely linked to a company’s finances, for example.
Keep in mind that all background checks must comply with the Fair Credit Reporting Act (FCRA). Additionally, even if an employer does pull your credit history, they will likely receive less information than what yourself or a lender would see.
Finally, background checks are considered soft credit inquiries, so they do not lower your credit score.
Hard vs. Soft Inquiries
There are two main methods by which an individual or organization can request credit information. The first is a hard inquiry, which is what many consumers think of when they think of credit inquiries that negatively impact on credit scores.
You would likely need a hard inquiry if you’re taking out a personal loan, getting a mortgage, or purchasing a vehicle. In essence, the hard inquiry is a more thorough check into your credit history as compared to a soft inquiry which returns less information.
Unlike hard inquiries, soft inquiries do not impact your credit score. Soft inquiries are typically associated with background checks and pre-qualifications. To put it simply, they are “general” inquiries meant to get an overview of your credit history, but not to make a definitive financial decision such as determining eligibility for a loan.
Background Checks and Your Credit Score
Since background checks are considered soft inquiries, they won’t impact your credit score, no matter how many jobs you apply for. In the case of background checks, an abridged version of your credit history may be used to determine how fiscally, or otherwise, responsible you may be, but that’s the extent of it. Your credit score won’t be impacted.
Author: Jeff Gitlen