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Employers can approach background checks in different ways. In some cases, credit reports are included. A job background check may include a credit check in certain industries, such as banking and security. The size of the company can be a factor, too: Large corporations are more likely to conduct a credit check than a small family business.

We’ll walk through the specifics of when an employment background check may include a credit check, why potential employers want this information, and what financial data they have access to.

What Are Credit Checks?

A credit check is a request to see your financial data as collected by one of the three major credit reporting bureaus: Equifax, Experian, and TransUnion. Credit reports contain information about past and existing credit accounts, payment patterns, and how much debt you’re carrying.

According to the Fair Credit Reporting Act (FCRA), only certain individuals and organizations have the right to check credit histories, such as lenders, insurance agents, and landlords. Potential employers can also conduct a credit check for employment purposes, with your permission.

Sometimes credit checks are conducted to confirm a consumer’s identity — and head off identity fraud — rather than to investigate your financial history. For instance, banks may run a limited credit check on customers looking to open a checking account.

Credit Check vs Background Check

A background check contains identification verification information along with data from criminal records, educational and employment backgrounds, civil records, driving history, and more. In some instances, a background check may also contain a credit check.

The Importance of Good Credit

A good credit history primarily makes it easier to get approved for a loan and to qualify for better interest rates and loan terms. The higher the score, the less someone will pay in interest over their lifetime, potentially saving them money in the long run.

Good credit can also help renters qualify for an apartment. In some cities, renters routinely provide a credit reference with their rental application. While there’s no minimum credit score needed to rent an apartment, a strong credit history shows landlords that you’re someone who pays their bills on time.

Employers may also check your credit if you’ve applied for a job. Having good credit without any red flags can make the hiring process go more smoothly. However, some cities and many states have banned this protocol or put limits on it.

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Why Employers Look at Your Credit Score

An employer may run a credit check on a job applicant whom they’re seriously considering hiring. Employer credit checks are more common in industries where employees handle money or have access to customers’ financial data.

By conducting credit checks, businesses hope to confirm that an applicant demonstrates financial responsibility and doesn’t pose a security risk to the company, other employees, or customers.

Responsibility

A credit report shows how responsibly an applicant has handled their own money. If there are any red flags, the employer may not want to hire that person to handle company funds or take on other important responsibilities.

Security

A credit report can be used to verify your identity along with other pieces of background information. If there are discrepancies that can’t be easily cleared up, that’s a red flag.

What a Credit Report May Tell an Employer

The information in a credit report can include employment history as well as red flags such as late payments, debts sent to collections, foreclosures, liens, lawsuits, and judgments.

Employment History

Your complete employment history is not included in a credit report. Past and current employers may appear on your credit report, but only if you listed them on a loan or credit card application. Typically, if a lender wants your employment history, they will ask you for it directly.

Late Payments

Credit reports contain information about current and historical credit accounts, including installment loans (mortgages, car loans, personal loans) and revolving credit (credit cards and lines of credit). The reports typically contain information from the past seven to ten years, including a person’s payment history and whether credit accounts are paid up to date or are past due.

Debt Collection

Once someone is behind on payments — at least 120 days — the lender may send the account to a collections agency. These agencies attempt to collect on the bill. This can have a significant impact on your credit score, since making payments on time is the biggest factor in the algorithm that determines your credit score.

Debt Charge-Off

If a company you owe money decides they can’t collect the funds, they can “charge off” the amount as uncollectible. This may stay on your credit report for seven years, starting with the delinquency date that ultimately led to the charge-off. A debt charge-off typically lowers the person’s credit score even more than going to collections.

Foreclosures

When a homeowner misses multiple mortgage payments, the lender may take possession of the home, or “foreclose” upon it. This remains on a credit report for seven years, starting with the first missed payment that ultimately led to the foreclosure. This can significantly reduce someone’s credit score — although the impact may diminish over time — and can be a red flag for employers.

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Liens

A tax lien is a claim that you owe money for taxes, usually federal, state, or property tax. Tax liens no longer appear on credit reports by the three major credit bureaus, and they can’t affect your credit. They are, however, available on public records. If an employer conducts a full background check, they can still receive this information.

Lawsuits and Judgments

Just like tax liens, judgments from lawsuits are not included in credit reports or factored into a credit score. An employer that conducts a background check, though, will likely receive this information because it’s part of public records.

How to Prepare for an Employer Credit Check

Every consumer should be aware of what information is available on their credit report. You can request your credit report and find out your credit score for free at AnnualCreditReport.com.

Review your report for errors. Even small typos — like misspelling your name — could present problems down the line. Report inaccuracies to the relevant credit bureaus via their online dispute process to have them corrected or removed.

You may also consider signing up for a credit monitoring service. What qualifies as credit monitoring varies from company to company. Look for a service or a money tracker app that sends customers alerts whenever their credit score changes, accounts are opened or closed, and red flags appear on their credit history.

If you’ve had financial problems in the past but have turned things around, be prepared to explain to your potential employer how you’ve accomplished that.

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Credit Check Limitations

Credit reports contain a lot of private financial information. However, you can feel secure knowing that there are strict limits to what can be included. The following information cannot appear on your credit report:

•   Account balances for checking, savings, and investments

•   Records of purchases made

•   Income information

•   Judgments and tax liens

•   Medical information (physical and mental), although money owed to a doctor or hospital can appear

•   Marital status

•   Disabilities

•   Race and ethnicity

•   Religious affiliations

•   Political affiliations

Does an Employer Credit Check Hurt Your Credit Score?

No. Employers conduct what is known as a “soft credit inquiry” or soft pull. Because the credit check isn’t the result of applying for a new loan or credit card, the request probably won’t appear on your credit report and it won’t affect your score.

What Are Your Legal Rights as a Job Applicant?

According to federal law, job applicants have the right to:

•   know what is in their file

•   ask for a credit score

•   dispute incorrect or incomplete information

•   be told if information in the file is used against them

An employer or potential employer must get written consent before they can request credit report information (the trucking industry is an exception). Some cities and many states have banned or put limits on an employer’s ability to check your credit report.

The Takeaway

Employers may run credit checks on applicants as part of the hiring process. By conducting credit checks, businesses hope to confirm that an applicant demonstrates financial responsibility and doesn’t pose a security risk to the company, other employees, and customers. Credit checks are more common at large corporations and in industries where employees handle money or have access to customers’ financial data. You can prepare for an employer credit check by requesting your report and correcting any errors. You may also want to use a credit score monitoring service to keep tabs on any changes.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Why do background checks include credit reports?

Information found in a credit report can give the employer a sense of the job applicant’s financial stability. This may be especially important if the job involves handling money, financial data, or pharmaceuticals. Some industries that routinely pull credit checks on applicants include banking, retail, insurance, public safety, and security.

Does a background check include a hard credit check?

No. A background check with a credit check involves a soft inquiry, so it won’t affect your credit score.

What causes a red flag on a background check?

Criminal records, suspicious credit histories, inconsistencies in information provided, and gaps in employment history can be considered red flags in a background check.

Photo credit: iStock/serggn

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SORL-Q324-035

In most cases, opening a checking or savings account is not reported to the major credit reporting bureaus and will not have an impact on your credit score. The same holds true for normal bank transactions and account balances.

That said, there may be some cases when a bank will perform what is known as a “hard pull” when you open an account, requesting access to your credit file. This can temporarily lower your credit score. Here, take a closer look at how your banking activity can impact your credit and the best way to keep your score as high as possible.

Consider Your Options Before Choosing a Bank to Avoid a Hard Pull Penalty

Banks and other lenders usually make a hard pull, or hard inquiry, when you apply for credit. This action will lower your credit score slightly (say, by perhaps five points) and temporarily. While the hard pull will stay on your credit report for two years, its impact on your credit should only last for a few months.

While your credit score is updated regularly, here’s why you should be concerned about too many of these in-depth credit checks. Several hard pulls on your credit report at the same time can make it look like you’re taking on too much credit and therefore might have a hard time paying your debts back.

When you open a bank account in person or online, the good news is that most banks will perform what is known as a soft pull. This sort of informal credit check when you apply to open checking at a bank has no impact on your credit score. (As mentioned above, in some rare cases, a bank will also make a hard pull when you open checking and/or savings. For example, some overdraft protection programs are considered a line of credit, so a bank may make a hard pull before approving you.)

If you’re worried about how a hard pull might affect your credit score, especially if you’re actively seeking credit, ask a bank whether they use them and under what circumstances. If they do plan on doing a hard inquiry, it may be worth considering banks that avoid this option.

How to Protect Your Credit Score

While opening a bank account likely won’t have an affect on your credit, there are certain other bank-related transactions that may lower your score, such as failing to pay your bank back when you use overdraft.

Your credit score is used by banks and other lenders to determine how risky it is to extend credit to you. The lower your score, the more risk you represent to them, and they’ll offset this risk by offering you higher interest rates. If you have bad credit, lenders may not extend credit at all. If you’re applying for a home, car, or personal loan, this can obviously have major ramifications!

So, as you’re establishing credit, it’s critical that you protect your credit score. The goal is to have access to cheaper credit when you need it. That means if you are not sure whether a hard inquiry will be performed, ask before approving a credit check. You don’t want those hard pulls to pile up. 

Also, you may receive many different kinds of credit card offers. Don’t assume more is better, as each one you apply for will likely trigger a hard pull, which in turn can raise red flags regarding your creditworthiness in the future.

Here are some other moves that can help keep your credit score in good shape.

Avoid Overdrafts

When you dip into the overdraft zone, you’ve spent more than you have in your checking account. If you have overdraft protection, your bank will step in and cover the shortfall. They will usually charge overdraft protection fees, and you’ll have to repay the money using a credit card or money from a savings account.

Overdrafts themselves do not affect your credit score if you promptly pay back the overdraft fees and what you owe. However, failing to do so will have an adverse effect on your credit. If, for instance, you are unable to pay off your credit card or the overdraft is sent to collections, your score is likely to tumble.

Avoid overdrafts whenever possible by keeping a close eye on how much money you have in your checking account and never spending beyond that amount. If you’re someone who frequently overdrafts, you may consider dropping overdraft protection. This means your debit card transaction will be declined when you try to make a purchase with money you don’t have. It may be momentarily embarrassing or inconvenient, but it will help protect your credit.

Pay Back Your Debts on Time

Punctuality counts. Your payment history plays a big role in determining your credit score. It may take into account credit cards, auto loans, student loans, home loans, and other forms of credit. It will show details on late or missed payments, including how much you owed, how delayed a payment was, and how often you’ve missed payments. Late and missed payments will detract from your score and can even stay on your credit report for up to seven years. So it’s important to pay on time.

Don’t Co-sign

Say a friend or family member is having troubling securing credit for themselves due to their bad score. They may ask you to co-sign a loan, using your good credit to help bolster theirs. Your heart may be in the right place and you may want to help, but proceed with extreme caution.

When you co-sign, you are also taking on responsibility for paying off that debt. That means if the friend or family member fails to make a payment, you’re on the hook for it. What’s more, their missed payments may have a negative impact on your credit score. For this reason, when you are in “protect my credit score” mode, it’s probably prudent to avoid co-signing.

File for Unemployment

If you lose your job and a steady stream of income, you may find it more difficult to pay your bills on time or you may take on more debt. Each of these scenarios can hurt your credit score.

Filing for unemployment can help you replace some of that income stream and prevent you from falling behind. What’s more, there is no public record that keeps track of who is receiving unemployment, and receiving benefits does not affect your score.

Seek Credit Counseling

Sometimes, despite one’s best efforts, debt gets out of hand or a credit score can spiral downward. If you are feeling overwhelmed and not sure of how to improve the situation, get help. Credit counselors are professionals trained to help you with money issues, including setting up a debt management plan as well as preparing and sticking to a budget.

You can find a counselor through nonprofit services, such as the National Foundation for Credit Counseling . With this kind of organization, there is usually no fee for your first counseling session, though there may be fees for subsequent services, such as crafting a debt management plan. These costs should be modest at most.

Be a Prudent Spender

The world has a lot of temptation out there in the form of tricked-out cars and mobile phones, great restaurants and vacation destinations, new clothes and more. But running up credit card charges you can’t pay off on time or taking out too steep loans can damage your credit and leave you deep in debt. Making a budget and spending within your means can help you avoid this kind of debt.

A budget can help you determine how much you can comfortably spend each month. To build a budget, you’ll need to establish budget categories. First tally your necessary expenses, including rent, mortgage payments, utility bills, groceries, insurance and debt payments. Subtract this from your monthly income. The money you have left can be put toward discretionary expenses such as eating out and entertainment, as well as paying down debt and saving. Be especially wary of spending beyond that discretionary limit. That’s where debt loves to live.

Monitor Your Score

You may wonder if checking your own credit score can lower it. The answer is no, and in fact, you should check. You can ask for a free credit report from each of the major credit reporting bureaus — Experian®, Equifax®, and TransUnion® — once per year. Each bureau will display slightly different credit scores. Take a look at each report and make sure it’s correct. If you find any mistakes, let the bureau know immediately.

Do Cash Management Accounts Do Hard Credit Checks?

Cash management accounts are alternatives to traditional bank accounts that are offered by online banks or robo-advisors. As with traditional bank accounts, cash management accounts typically will not perform a hard credit pull when you open an account. It is therefore unlikely to lower your score.

The Takeaway

For the most part, opening a checking, savings, or cash management account will not hurt your credit score. Banks, credit unions, and other providers typically do what is known as a soft pull, not a hard pull, when considering your application. This process should not lower your credit rating nor linger on your report. That said, there may be some activity related to your accounts that can cause your score to drift downward, such as unpaid overdrafts. Do what you can to avoid these, and protect your credit score. 

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What are the 5 C’s of credit?

They are 1) character (overall, are you trustworthy?), 2) capacity (will you be able to maintain your end of a financial arrangement?), 3) capital (do you have sufficient funds to enter this arrangement?), 4) conditions (looking at the big picture, are economic forces favorable to your entering this arrangement), and 5) collateral (if you’re taking out a loan, do you have something of value to offer as security?).

What is a hard inquiry?

A hard inquiry, also known as a hard pull, occurs when you apply for credit and your lender has requested to look at your credit file. A hard pull will temporarily lower your credit score, typically by five points or less.

Does it hurt your credit to open a checking account?

Generally speaking, opening a checking account does not trigger a hard pull and does not hurt your credit score.

Is there a downside to opening a checking account?

When opening a checking account, it is important to be aware of any fees you may be required to pay or account minimums you’ll need to maintain.

Does opening a savings account require a credit check?

While most banks, credit unions, and other financial institutions do check your credit when you submit an application to open an account, these are most often soft inquiries that don’t impact your credit score.

Does opening a savings account impact your credit score?

As with checking accounts, opening a savings account does not typically trigger a hard pull that would affect your credit score.

Is it bad to open a savings account?

It’s usually a good idea to open a savings account. It establishes a foothold for future savings, and you can open an account with just a little bit of cash – in some cases, you can even start an account without depositing anything.

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SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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