Yes, in many cases, an employer can request a credit report as part of a background check, but it isn’t automatic, and it isn’t allowed everywhere. Employment credit checks are governed by the FCRA at the federal level, and by a growing patchwork of state and local laws that restrict or outright prohibit their use for most positions.
Important: A meaningful number of states restrict or ban the use of credit history in employment decisions entirely, except for narrowly defined roles. Employers should confirm applicable state and local law before requesting a credit report for hiring purposes.
What an Employment Credit Check Actually Shows
An employment credit check is not identical to the credit report a lender pulls when evaluating a loan application. It’s typically a modified version, sometimes called an employment credit report, that omits a credit score entirely and generally excludes certain protected information. What’s typically included:
- Open credit accounts and payment history
- Collections accounts and charge-offs
- Bankruptcies
- Civil judgments and liens, where still permitted to be reported
- Public record information related to debt
Employment credit checks generally do not include a numeric credit score, and depending on state law, certain information, such as medical debt, may be excluded or given special treatment.
Why Employers Need a Permissible Purpose
Under the FCRA, a consumer reporting agency can only provide a credit report when the requester has a legally permissible purpose, and employment is one of the recognized purposes, but only when specific procedural steps are followed. Employers must provide a clear disclosure, obtain the applicant’s written authorization, and, in some states, provide an additional notice specifically related to credit history before requesting the report.
How Far Back Credit Information Can Be Reported
Most negative credit information carries a reporting limit under the FCRA. Late payments, collection accounts, and charge-offs generally cannot be reported after seven years. Chapter 7 bankruptcy is a notable exception to this rule and may be reported for up to 10 years rather than seven. These are federal ceilings, some states impose shorter limits, but none can extend reporting beyond what the FCRA allows.
Where State Law Restricts or Bans Employment Credit Checks
A significant number of states have enacted laws that either ban employment credit checks outright for most positions, or restrict them to specific job categories where credit history is considered directly relevant. Common exceptions written into these laws include:
- Positions with direct access to significant financial accounts or company funds
- Certain roles at financial institutions, subject to separate federal licensing requirements
- Managerial or executive positions with fiduciary responsibility
- Positions requiring a security clearance or specific regulatory credential
Because coverage and exceptions vary meaningfully from state to state, and sometimes at the city level as well, an employer operating in multiple locations cannot assume a single national policy on credit checks will be compliant everywhere. What’s a routine, permitted check in one state may be an outright legal violation in another.
Why Employers Check Credit At All
For roles where credit history is still permitted, employers generally use it to assess financial responsibility relevant to specific job duties, particularly for positions involving direct handling of money, sensitive financial data, or significant fiduciary discretion. It is not intended, and legally cannot be used, as a general character assessment disconnected from the actual responsibilities of the role.
Disparate Impact Considerations
Beyond state-specific bans, credit checks carry a broader legal consideration under federal anti-discrimination guidance. Because credit history can correlate with protected characteristics in ways that aren’t directly job-related, the EEOC has provided guidance cautioning employers against using credit history as a blanket screening criterion unless it’s genuinely relevant to the specific position. Employers relying on credit checks broadly, rather than for roles where financial responsibility is a real job function, face elevated legal exposure beyond whatever state-specific restrictions may already apply.
Adverse Action Still Applies
If an employer intends to take a negative employment action based in whole or in part on a credit report, the same FCRA adverse action process applies as with any other type of background check: a pre-adverse action notice, a copy of the report, a Summary of Rights, a reasonable waiting period, and a final adverse action notice if the decision proceeds. Credit reports are not treated as a special exception to this process.
Common Misunderstandings
“A credit check shows a credit score.” Generally not. Employment credit reports typically exclude the numeric score entirely.
