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You’ve been offered a job and everything is falling nicely into place — until your potential employer tells you they need to do a background screening, which will include running a credit check. Your credit score isn’t where you want it to be, and suddenly you’re very concerned. Will they rescind the offer based on your finances?

For positions outside the banking and finance world, your credit report will likely have zero effect on whether you get the position. And background checks for employment don’t affect your credit score.

Read on to learn the common types of background checks employers run and why they may want to look at your creditworthiness.

What Is a Background Check?

Not all job applicants are completely honest during the interview process. For that reason, many companies run some type of background check on prospective employees. Research from SHRM, the Society for Human Resource Management, found that 92% of companies in the U.S. conduct some type of background screening as part of the hiring process.

Employers order background checks not only to verify your identity, but also to confirm you’re telling the truth about certain things, including your past employment, academic credentials, and whether you have a criminal record. (Similarly, banks run credit checks for new checking accounts mainly to verify your identity and rule out identity theft and fraud. This shouldn’t usually affect your credit score.)

Pre-employment screening is typically conducted by a professional background check company hired by the employer. These third-party firms have access to resources and tools the average employer doesn’t, so they can deliver a more comprehensive report in a shorter amount of time.

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What Are Employers Looking Out For?

Hiring managers are looking to avoid bringing someone onboard who is unqualified or poses any kind of risk to their business. Without any official vetting, the wrong candidate could result in financial damage to the company or make the workplace less safe for other employees.

By doing a background check, companies can reduce property damage, employee theft, and liability and legal costs incurred by hiring unqualified, uncredentialed people. Companies also hope to avoid employees who have exhibited threatening behavior toward coworkers in the past.

When companies order a credit check for employment, it’s to get an idea of whether the candidate might show signs of financial problems.

Having excessive debt and using a lot of your available credit could signal financial hardship and distress. An employer may see candidates with high outstanding debt or maxed out credit cards as having an increased likelihood of committing theft or fraud.

How a Background Check Affects Your Credit Score

The good news is an employer background credit check won’t affect your credit or FICO score at all. Why? It’s considered a soft inquiry, which pulls most of your financial information for data purposes as opposed to a hard inquiry, which can take points off your score. That’s because hard checks generally take place when a financial institution looks at your score to determine whether or not to issue you a loan or a credit card.

As mentioned earlier, an employer-requested credit report will be modified, listing your credit utilization rate, any past or current bankruptcy, available lines of credit, auto or student loans, and credit card payment history.

The credit report the employer sees won’t show other soft inquiries, so they can’t see if other employers have checked on you.

You, however, can see the soft inquiries if you request your own credit report. You could even sign up for a free credit-monitoring service to keep tabs on your credit on an ongoing basis. A money-tracker app can give you ongoing insights into your financial health.

7 Types of Background Checks

There are many different types of background screenings employers use to vet job candidates. The employer may use one or a combination of checks depending on their needs and concerns. Here are seven kinds of background checks a company may use to screen a new hire:

Identity Verification

This type of check is usually one of the first stages of a background check because an employer wants to first know that the person is who they claim to be. An ID verification confirms the candidate’s name, age, address, and Social Security number, to rule out any aliases or stolen identity.

Criminal Screening

A criminal record check enables the employer to make an informed decision about whether or not the employee will pose a threat to their company, clients, and employees. It’s especially important if the person will have access to financial information, security responsibilities, or work alongside vulnerable populations such as the elderly and children.

Criminal background checks typically include county, state, or federal records of any arrests, convictions for felonies and misdemeanors, outstanding arrest warrants, sex offenses, incarceration records, and any acquittals, pending, or dismissed charges.

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Credit Check

It may not be relevant to run a credit check for every potential new hire. An employer may feel it’s necessary for positions involving a security clearance, proximity to money, sensitive customer data, or confidential company information. And they’re not really interested in knowing whether you have a fair credit score.

A credit check may raise certain red flags that employers want to avoid, especially if it’s a job in the banking or finance sector. Many late payments can indicate you have trouble managing your money, aren’t responsible and organized, or can’t live up to agreements. As mentioned previously, these credit checks will not affect your credit score, nor will the employer be able to see your score.

You may want to see if your state or city allows employer credit checks. Currently, 11 states (California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, Washington), and the District of Columbia have passed laws restricting these types of credit checks. New York City, Chicago, and Philadelphia have similar laws.

By the way, credit-monitoring services can alert you when someone has run a hard inquiry on your credit.

Motor Vehicle Records

When an employee may be expected to drive company vehicles or transport clients and customers, the employer will want to review the candidate’s driving record to ensure they’re hiring safe and responsible people.

A driving record check will show the person’s driving history, including any past license suspensions or revocations, vehicular crimes, accident record, DUI convictions and any car insurance lapses. The motor vehicle report will also reveal the number of points someone has on their license.

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Professional License and Education

Some people may exaggerate or even give false professional credentials, claim they’re licensed by an official agency, attended a certain school, or have a specific academic degree, certain training, or certifications, thinking no one will really bother to check. But not so fast. Employers can and, in many cases, do fact check these claims.

Not verifying stated qualifications could lead to hiring a candidate who isn’t professionally qualified for the job. And hiring someone without the skills and education needed can make the company vulnerable to lawsuits and other problems. Education verification checks universities, colleges, vocational schools, and high schools to confirm enrollment, dates of attendance, type of degree obtained, and graduation date, among other details.

With professional licenses, background screening companies generally contact organizations to check if the person is licensed and is a bonafide member. They will make sure the membership is in good standing and hasn’t lapsed or expired.

Fingerprint Check

Along with the criminal check, fingerprint checks are used to reveal any criminal arrests, charges, or details about prior case results. Unlike other screenings, fingerprint checks require the potential employee to actively participate in the process by having their fingerprints scanned.

Fingerprint checks are often required in regulated industries such as financial services; government or criminal justice agencies; jobs requiring security clearance; and healthcare, where a candidate may be responsible for someone who is vulnerable such as a child or the elderly.

E-Verify

E-Verify is a government-run, web-based system through which employers can confirm an individual’s employment eligibility. Verification is based on data taken from an employee’s Form I-9, Employment Eligibility Verification and compared to records available to the Social Security Administration and U.S. Department of Homeland Security.

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How to Prepare for a Background Check by a Potential Employer

First, be honest on your job application and resume, and during the interview process. Bring up anything you think might concern your employer before they do a background check. You can also do a background check on yourself to see if there are any discrepancies or mistakes in your records you can clear up. You can order one from a provider such as Betterfuture.com.

In terms of your credit report, if you’re concerned an employer may have some issues, it’s a good idea to review yours in case there’s something you need to correct or resolve. The three main credit-reporting bureaus are Experian, TransUnion and Equifax. You can access your credit report for free by going to AnnualCreditReport.com, a federally mandated site. (Banks sometimes rely on a tri-merge credit report to see a round up of all three but consumers usually do not have access to this type of report.)

What Are Your Legal Rights as a Job Applicant?

According to the Federal Trade Commission (FTC), employers must obtain your written permission before they can run a background check. You have the right to say no, but bear in mind, this could result in your not getting hired.

When employers use a third party to conduct a background check including credit, criminal record, and past employment, the background check is covered by the Fair Credit Reporting Act (FCRA).

Under this law, employees have the right to:

•   Be informed of the background check

•   Provide consent for the background check

•   Review information pertaining to their personal and financial information

•   Correct any inaccuracies the report may contain

•   Appeal decisions if the applicant feels the decision was made unfairly

Laws in your city or state may impact whether, or when, employers can ask about and run a background check for your criminal or credit history. Before you fill out an application, check the laws in your state.

Can You Get a Copy of the Background Check?

Yes, the Fair Credit Reporting Act states you have the right to a copy of the background check from the company that prepared it. The name of the agency was likely on the consent form you signed, but if you can’t remember it, ask the employer to supply it. The screening agency should be able to provide you with a complimentary copy in a timely manner.

The Takeaway

Background checks have become a pretty routine part of the hiring process. These screenings can include a simple ID verification, driving or criminal record check, and pulling your credit report. Although it can be worrisome to know your employer’s checking on your credit, they’ll see an overview of your financial picture but not your actual credit score. Since it’s a “soft pull,” your credit score number will not change.

By knowing where you might be most vulnerable, you can prepare yourself by maintaining good records, being honest about your work and education history, and conducting your own background check to clear up any inaccuracies or potential problems.

Getting your finances on track starts with your credit score. Free credit monitoring is available with SoFi’s money tracker app. All you have to do is sign up (it takes just minutes) and start getting insights into your financial health.

FAQ

Can a job offer be rescinded due to bad credit?

Yes, an employer can withdraw the job offer for almost any reason, including your credit report. They can’t, however, rescind the offer due to discrimination based on gender, race, or disability. If you think this could be a reason, consider talking to an attorney. Otherwise, you can express your disappointment to the hiring manager and request more details on why they made their decision. This provides an opportunity to get a clear explanation.

What does an employer check show?

Employment background checks are typically performed to see an employee’s job history, if they have a criminal record, and to verify their identity. A screening may also include validating education and/or professional qualifications, driving records, and/or credit history.

Do background checks show up on a credit report?

When a company requests a credit check as part of employment screening, it’s considered a soft inquiry. Since soft inquiries aren’t linked to an application for new credit, they’re only visible to you when you view your credit reports.

Photo credit: iStock/MissTuni

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.

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This article is not intended to be legal advice. Please consult an attorney for advice.

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Midterm elections can introduce uncertainty and turmoil to the stock market. A change in power in Congress could lead to policy and regulatory changes that could impact the economy and corporate profits. As such, investors will be watching to see which party wins control of Congress and the implications for the stock market.

Historically, the stock market has underperformed leading up to midterm elections and bounced back in the year following the elections. Many investors use this historical precedent to predict how midterms will affect the stock market in the future. However, past performance is not indicative of future results. The midterm elections may be less important on the stock market than other economic factors, like high interest rates, inflation, and rising energy costs.

What are the Midterm Elections?

As the name suggests, midterm elections occur in the middle of a presidential term, as opposed to a general election. Midterm elections are when voters elect every member of the House of Representatives, and about one-third of the members of the Senate. The results of the midterm elections often determine which political party controls the House and Senate, which could determine the future of economic policy that may affect the stock market, and investors’ plans for buying and selling stocks or other securities.

History of Midterm Elections Results

Historically, the president’s party loses ground in Congress during the midterm elections. Of the 22 midterm elections since 1934, the president’s party has lost an average of 28 seats in the House of Representatives and four in the Senate. The president’s party gained seats in both the House and the Senate only twice over this period.

The flip in power during the midterm elections occurs, in part, because the president’s approval rating usually declines during the first two years in office, which can influence voters to vote against the party in power or not show up to the polls. Additionally, voters of the party not in control are often more motivated to vote during these elections, boosting voter turnout that can help the opposition party outperform the president’s party.

During the most recent midterm election cycle, in 2022, the Republican party won the House of Representatives with a 222-213 seat majority. The Democratic Party maintained a majority in the Senate, with a 51-seat majority.

Stock Market Performance During Year of Midterm Elections

Leading up to the midterm elections, the stock market tends to underperform. Since 1962, the average annual return of the S&P 500 Index in the 12 months before midterm elections is 0.3%. In contrast, the historical average return of the S&P 500 is an 8.1% gain.

This underperformance during the midterm year follows the Presidential Election Cycle Theory, which implies that the first two years of a president’s term tend to be the weakest for the stocks.

However, it’s unclear whether this downbeat performance and stock volatility in the year preceding the midterms is a function of investors’ views of potential election outcomes and subsequent policy changes.

Some analysts say that the underperformance occurs due to uncertainty about the election’s outcome and impact, and investors don’t like uncertainty. But others say that the more critical impact on the stock market is the state of the economy; factors like the Federal Reserve’s monetary policy, energy prices, inflation, and the state of the labor market are more important to the stock market.

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Stock Market Performance Following Midterm Elections

Even though the stock market, as measured by the S&P 500, has historically underperformed leading up to the midterm elections, stocks have tended to overperform in the post-election environment. Between 1962 and 2022, the 12 months after midterm elections, the S&P 500 had an average return of 16.3%.

The gains in stocks following the midterm elections have occurred due to no single factor. One reason may be that investors prefer the certainty of knowing the makeup of the federal government and potential policy changes.

Moreover, some believe that because the president’s party typically loses ground in the midterm elections, it reduces the likelihood of policy changes that could have a negative impact on the economy. This, in turn, can provide a tailwind for stocks. The potential for gridlock, rather than sweeping policy and regulatory changes, is usually welcomed by investors.

How Did the 2022 Midterm Elections Affect the Stock Market?

It is always difficult to say how any midterm election cycle will affect the stock market. But we can look at the most recent midterm election, in 2022, to get a sense. Immediately following the election, on November 8, 2022, the S&P 500 did see an increase – but in December, the market later fell before gaining steam again in January.

So, it’s difficult to say how much the elections weighed on the markets, aside from other factors. During that time, for instance, rising inflation and interest rates may have been playing a larger role in the market’s performance than other variables.

But broadly and historically, again, the most obvious way the midterm elections could impact the markets is that if one party or the other gains control of Congress, that could influence economic policy and the country’s direction. This could lead to tax policy, regulation, and spending changes that could impact businesses and the stock market.
Another potential impact of the midterm elections is that if there is a change in control of Congress, that could lead to more investigations and subpoenas of businesses and individuals, which could create uncertainty that investors and the markets may not like.

The Takeaway

The history of midterm elections is one of cycles: the party in power typically loses ground during midterm elections, and the opposition party typically gains ground. And these cycles are also evident in the performance of the stock market, with muted stock gains in the year of a midterm election and substantial gains the year following the elections.

But despite these historical trends, no one can say for sure how the midterm elections will impact the stock market. And investors shouldn’t necessarily rely on these trends when making investing decisions. Instead, investors might want to try and maintain a long-term view to reach financial goals, avoiding the short-term noise and uncertainty of elections and politics. Investors should continue to focus on asset allocation, risk tolerance, and the time horizon of a diversified portfolio to achieve financial goals.

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