Henry F. Sherrod III, P.C.

Alabama Civil Rights and Employment Lawyer

Credit Checks

This page provides answers to the following questions:

1. I am applying for a new job, and they have asked me to sign a form which allows the employer to run a credit check. Can the employer use that information in determining whether to hire me?

2. I am up for a promotion, and was asked to give permission for a credit check. Can the employer use that information against me to deny me a promotion?

3. Does my employer have to get my permission before requesting a credit check?

4. My employer says I have given permission for a credit check, but I didn't recall granting them permission. They showed me the form, and it was buried deep in a bunch of other text on my application form. Is that adequate to show my approval?

5. I granted my employer permission to check my credit when I was hired several years ago, but it did not do so then. Now, a new manager has decided that everyone's credit should be checked. Does my employer have to give me notice that it is now checking credit reports?

6. What if I refuse to give my employer permission to check my credit? Can my employer fire me?

7. I was the victim of identity theft, and there is some negative information on my credit report which isn't true. Can my employer use that against me?

8. Does the employer have to tell me that I was rejected for the job on the basis of my credit report?

9. My employer notified me that it was considering taking action against me due to my credit report, and now I've been fired without a reason. How do I know whether that's the reason I was fired?

10. What do I do if I think my employer has violated the Fair Credit Reporting Act?

11. What do I do if I have been denied a job or fired on the basis of my credit report?

12. Where can I find more information?

1. I am applying for a new job, and they have asked me to sign a form which allows the employer to run a credit check. Can the employer use that information in determining whether to hire me?

Possibly. Many employers now use the same credit files used by credit card providers and mortgage brokers to determine whether you are the most financially stable and reliable employee for the job. Credit agencies can share your information with those who have a legitimate business need for the information. An employer using your report to determine your eligibility for "employment, promotion, reassignment or retention" is therefore entitled to access. Whether an employer can run a credit check will depend on what state you live in.

The Fair Credit Reporting Act governs the use of credit information in the employment setting. The FRCA is designed to ensure that you are aware of and agree to your credit report being used for employment purposes, and that you are notified promptly if information in a credit report may be used in a negative employment decision. If you are job hunting, you may want to check your credit report with each of the three major credit reporting agencies (Experian, Trans Union, and Equifax). You are entitled to a free copy of your report from each agency every twelve months. For more information, see the official website to obtain your free report at www.annualcreditreport.com.

Under federal law, the Fair Credit Reporting Act governs the use of credit information in the employment setting. The FRCA is designed to ensure that you are aware of and agree to your credit report being used for employment purposes, and that you are notified promptly if information in a credit report may be used in a negative employment decision. If you are job hunting, you may want to check your credit report with each of the three major credit reporting agencies (Experian, Trans Union, and Equifax). You are entitled to a free copy of your report from each agency every twelve months. For more information, see the official website to obtain your free report at www.annualcreditreport.com.

Although employers must request your permission before obtaining your credit report, the FCRA does not prevent employers from denying you a job or promotion, or even terminating you on the basis of your negative credit--even if your credit report is incorrect. Some employers have even used an employee's credit report to find out whether the employee was looking for work with other companies, since the credit report lists all companies who have recently accessed the employee's credit.

However, 7 states have passed legislation that limits an employer's ability to use your credit report in the employment setting. Those states are: California, Connecticut, Hawaii, Illinois, Maryland, Oregon, and Washington. In most of those states, it is now an illegal employment practice for an employer to use a credit report in making employment related decisions. There are exceptions in most states, including financial institutions, public safety officers, and where a credit report could be related to your job duties.

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2. I am up for a promotion, and was asked to give permission for a credit check. Can the employer use that information against me to deny me a promotion?

Possibly. Again, this will depend on which state you live in. Under federal law, with your permission, the employer can use the credit check as one of the factors in determining the best candidate for the job. It does not matter whether or not the job has anything to do with handling money, juggling budgets, or similar tasks for which credit information might relate more directly to your fitness for the job.

However, if you live in any of the 7 states in which legislation concerning credit checks has been passed (California, Connecticut, Hawaii, Illinois, Maryland, Oregon, and Washington), your employer may not use this information to deny you a promotion.

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3. Does my employer have to get my permission before requesting a credit check?

Yes. The FCRA requires that you give written permission before your employer can access your credit report. An employer who does not obtain your permission before requesting your report has violated the FCRA.

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4. My employer says I have given permission for a credit check, but I didn't recall granting them permission. They showed me the form, and it was buried deep in a bunch of other text on my application form. Is that adequate to show my approval?

No. The written disclosure that your employer will seek credit information about you must be contained within a separate document used solely for that purpose, with a separate authorization signature required. It cannot be buried in a job application or employee handbook.

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5. I granted my employer permission to check my credit when I was hired several years ago, but it did not do so then. Now, a new manager has decided that everyone's credit should be checked. Does my employer have to give me notice that it is now checking credit reports?

No. Once you have given written permission, the employer is not legally required to give any additional notice before actually obtaining the report from a credit reporting agency. Even if you had good credit when you started work, your employment could be at risk if your employer decides to check your credit later, and your credit rating has declined in the meantime.

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6. What if I refuse to give my employer permission to check my credit? Can my employer fire me?

Without your permission, your employer cannot check your credit report, but your refusal may leave your employer thinking that you have something to hide. Under federal law, there is nothing in that situation that protects you from being terminated or not getting hired by a prospective employer. However, 7 states (California, Connecticut, Hawaii, Illinois, Maryland, Oregon, and Washington) have passed legislation that protect against such discrimination.

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7. I was the victim of identity theft, and there is some negative information on my credit report which isn't true. Can my employer use that against me?

Your employer can technically use any information in your credit report any way it wants, as there is no protection against losing your job on the basis of information in your credit report. However, before your employer rejects you for a job based "in whole or in part" on something in your credit report, the employer must give you a copy of the report before turning you down and written instructions on challenging the accuracy of the report. For more information, see question 8.

The FCRA's notice provision is supposed to give you some opportunity to work with the credit bureaus to ensure that all information in the report is accurate--which you should already be doing if you know there is a problem. Hopefully, your credit file will reflect that you were the victim of identity theft, and your employer will be reasonable and not use that information against you.

However, your employer does not have to give you time to get the information investigated and corrected, and cannot be held liable for taking action against you due to information in your credit report, even if the information is erroneous.

For more information, see the FTC publication: How To Dispute Credit Report Errors.

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8. Does the employer have to tell me that I was rejected for the job on the basis of my credit report?

Yes and no. Before your employer rejects you for a job based "in whole or in part" on something in your credit report, the employer must give you a "pre-adverse action disclosure," consisting of:

[Arrow] a copy of the report used; and
[Arrow] written instructions on challenging the accuracy of the report--generally accomplished by including a copy of the Federal Trade Association's pamphlet: 'A Summary of Your Rights Under the FCRA'.

However, it is difficult to determine whether an employer has been influenced by your credit report and/or violated the law, if the employer gives some other legitimate reason for the decision.

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9. My employer notified me that it was considering taking action against me due to my credit report, and now I've been fired without a reason. How do I know whether that's the reason I was fired?

If your employer has decided to take adverse action against you, such as firing you or denying you employment, a promotion, or a reassignment, because of your credit report, it must provide you with an "adverse action notice," containing the following information:

[Arrow] the name, address and phone number of the credit reporting agency used;
[Arrow] notice of your right to obtain another free copy of your credit report, upon request and within 60 days;
[Arrow] notice of your right to dispute the accuracy of the report with the credit reporting agency; and
[Arrow] notice that the credit reporting agency did not make the decision to take adverse action against you and is therefore unable to provide the specific reason(s) why the action was taken.

However, as noted above, your employer may give another legitimate reason, or may not give a reason at all, once it is aware of the negative information in your credit report. Even though the employer is supposed to give you the information listed above if information in your credit report influenced the employment decision in whole or in part, it is difficult to prove whether the employer followed the law when making its decision.

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10. What do I do if I think my employer has violated the Fair Credit Reporting Act?

Under the FCRA, a current or prospective employer cannot be sued for defamation, invasion of privacy, or negligence regarding its use of the information in the credit report, unless the information was false and provided with malice or willful intent to injure you. This is a very high legal standard and unlikely to be met in most cases.

However, an employer who violates the FCRA can be sued for actual damages, court costs, and reasonable attorney's fees, and in the case of a willful violation, can be sued for punitive damages. The Federal Trade Commission (FTC) can also sue employers for civil penalties of up to $2500 per violation. Some states may also have laws which protect you in this situation.

If you think your rights under the FCRA have been violated, contact a local attorney and/or fill out an FTC Consumer Complaint Form.

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11. What do I do if I have been denied a job or fired on the basis of my credit report?

As mentioned above, under federal law, the FCRA does not contain any remedies for individuals denied jobs on the basis of information from their credit reports, even if the negative information used is inaccurate. If the information in your credit report is inaccurate, you should make it a priority to get it corrected. If it is accurate, then you may need to find a different employer who does not check credit reports for all or any jobs.

If you think that your employer used your credit report as a smokescreen for another form of retaliation or discrimination, or has used a negative credit report against some employees but not other similarly situated employees, then you may want to consult with an attorney to see if you have other grounds for challenging the employer's action.

However, if you live in a state that has passed legislation concerning credit checks in the employment setting (California, Connecticut, Hawaii, Illinois, Maryland, Oregon, and Washington), you should contact a lawyer to find out more about your rights.

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12. Where can I find more information?

FTC Publication: Negative Credit Can Squeeze a Job Search

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