Does a Job Credit Check Affect Your Score?

Employers check credit scores as a way to gauge the financial responsibility of potential employees. These checks appear on the credit report as a soft inquiry. This record appears only on the credit agency report that is used for the inquiry, i.e., TransUnion, Experian or Equifax. Although credit checks of any kind appear on the credit report, no one is ever denied credit based on employment credit checks.

Soft Inquiries

Every inquiry made to your credit report generates a record. The type of inquiry performed by an employer is called a soft inquiry. The term "soft inquiry" refers to credit inquiries initialized by you, a potential employer or a pre-approval offer from a credit card company. Soft inquiries usually do not involve the opening of a credit account. On the other hand, when potential lenders check a credit score, it is called a hard inquiry. Hard inquiries occur when you apply for a credit card or mortgage.

Credit Effect

A potential employer checking your credit report does not affect your credit score. Your credit undergoes many soft inquiries without your knowledge almost every month. These are usually in the form of pre-approval inquiries from credit card vendors. A hard inquiry will cause a slight reduction in the score, but the extent of the damage depends on many variables, such as the state of your credit score at the time the report is pulled. A hard inquiry requires authorization from the consumer before it is performed. The government also requires employers to obtain authorization before pulling the credit reports of job applicants.

Why Employers Check Credit Reports

While lenders review credit reports to determine a consumer's credit worthiness, employers use credit scores to gauge an applicant's financial maturity and responsibility. A recent survey conducted by the Society for Human Resources Management stated that 60 percent of companies surveyed run credit checks on some job applicants. Given the current economy, the validity of credit scores portraying an accurate measure of an applicant's ability to perform a job is suspect. There are some states working to curb the use of credit checks by employers.

Other Considerations

Federal law mandates that credit inquiries remain on the credit report for at least a year. Hard inquiries usually remain for two years. Many potential lenders will disregard any inquiries older than six months. To limit the number of inquiries to your credit report, contact the credit agencies to opt out of pre-approval marketing lists.

Check your report regularly because multiple inquiries not initiated by you could be a sign of identity theft. Also checking your report before a potential employer pulls the report can prepare you for any questions they may have about your credit.