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Does a background check include a credit check?

You may ask, “Does a background check also require a credit check?” A background check does not always include a credit check. And if a credit check is required, the requestor may receive a modified report. For example, unlike lenders, employers cannot see credit scores. 

Consumer reports are required by lenders, employers, landlords, and more. If you are interested in applying for an apartment, keep in mind that 68% of renters pay application fees to cover tenant screening reports.1

In this article you’ll learn the ins and outs of background checks and what information is included. 

What’s Included In a Background Check?

A background check will help confirm that the applicant is who they claim to be with identifying information. Personal identifying details can help the potential employer or landlord running the background check know that you are not lying about your identity. 

There are various background check services that may provide different information. However, all of them will include the person’s criminal record, which is the primary purpose of a background check. Some services will provide information on the applicant’s educational degrees, employment history, driving record, and important civil records.

Prospective employers and landlords may run a background check on potential employees or tenants to ensure that there are no criminal records that are of concern. Put most simply, a criminal background check is meant to ensure the applicant’s good character.

Criminal History

A criminal history check may be a necessary step in the hiring process for specific sensitive jobs or even by potential employers looking to create a particular type of workplace environment. 

Background checks allow landlords to maintain safe apartment complexes and neighborhoods.

You may have already answered questions about your criminal history on the apartment or job application. These checks make fact-checking possible so they can be sure all the information you have provided is accurate. 

Can Background Checks Include Your Credit? 

Some background checks include credit report information in the results. However, a full credit check is far more comprehensive when done independently. So in cases when both a credit check and background check are needed, they will often both be performed simultaneously.

What’s Included In a Credit Check?

Credit or financial checks are far more commonly performed than background checks, as they are necessary every time you apply for new credit. Credit checks pull your report to see the overall state of your finances. Your report can confirm that you are financially responsible or show signs of possible financial distress. 

Employers, lenders, credit card companies, and landlords will pull your report so they can get an idea of your creditworthiness and reliability. Therefore, it’s critical to know how to read a credit report

If you have bad credit, you might look into lenders that offer a $700 loan with no credit check. But it’s critical to know that no credit check loans tend to have predatory loan terms and high loan fees

Credit Report

You have three credit reports; one from each of the three major credit bureaus. Which credit bureau the creditor pulls your report from – TransUnion, Experian, and Equifax – depends on their preference which is why all three credit reports matter. 

Each of your credit reports will have the same basic financial information about your credit history. Your report will look something like this:

Personal Details

Each credit report will include personal information that can tie you to your report. These details aren’t used to calculate your credit score but instead used to ensure that whoever is checking your credit gets the right report. Details will include your full name, date of birth, Social Security Number, previous and current addresses, phone numbers, and employer information.

Credit Accounts

Next, details on all of your past and current credit accounts will appear on your credit report. This information will include the type of account (installment loans, cash advance loans, credit card debt, etc.), the date the account started, the loan amount or credit limit, the account balance, and the payment history.

Credit Inquiries

Whenever credit checks are performed, they show up on your credit report as hard inquiries. Applying for a credit card or loan can hurt your credit score. And too many hard credit inquiries within a short period of time can negatively affect credit score. Hard inquiries can stay on your credit file for up to two years, but checking your own credit or being pre-approved won’t harm your credit as those are considered soft inquiries.  

Public Record & Collections

Credit bureaus will also include public records from state and county courts that relate to credit issues. The records that are likely to appear in a consumer’s credit report include foreclosures, repossessions, and bankruptcy filings. The account may be passed off to a debt collection agency when you have too many missed payments. Collection agencies will report your past due accounts and show up as derogatory marks on your credit report. 

Credit Score

Your credit score utilizes five components of information that have been included in your credit report. These five categories each account for a percentage in calculating the three-digit credit score heavily relied upon in credit checks:

FactorDescriptionImpact on Credit Score
Payment HistoryRecords of your payments on financial accounts, including any late or missed payments.35%
Amounts OwedTotal debt you have in comparison to your credit limits (credit utilization rate).30%
Length of Credit HistoryAge of your oldest credit account, the age of your newest credit account, and an average age of all your accounts.15%
Credit MixThe types of accounts you have (mortgages, auto loans, credit cards, etc.).10%
New CreditNumber of recently opened credit accounts and the number of recent inquiries into your credit report.10%

Why Do Employers Check Your Credit?

Landlords and lenders checking your credit report makes sense, but you might be unsure what purpose credit checks serve for employment purposes. Why would employers need to perform credit checks? 

When employers pull reports for job applications, they usually don’t check the applicant’s credit history in full but instead receive a modified credit report instead. Employers will not see your credit score but rather an overview of your debt and payment history. 

Some reasons why employers find this necessary to do include: 

  • A consumer report might be performed for security purposes so that the employer can be sure you are trustworthy.
  • Small businesses may want to ensure that you are reliable in handling your own finances. 
  • If you have excessive debt, this could be a red flag to employers that you are more likely to commit fraud or theft. 

Not all employers will be checking your credit for the same reason, but it’s a good idea to be positive that your credit report is in good shape in case you apply for a job that requires a credit check.

Tips For Improving Your Credit History

To prepare yourself for credit history checks, there are several helpful actions you can take to boost your score and clean up your report. Here are a couple of the things you can do to make a positive impact on your credit report:

Check Your Own Credit Report Regularly

Thanks to the fair credit reporting act, every person is entitled to a free credit score and report from each credit bureau once a year. Checking the free copy of your own credit report every year is one of the best things you can do for optimal financial health. It will allow you to catch inaccuracies quickly and narrow down what improvements you need to make.

Decrease Your Credit Utilization Rate

If you don’t have much available credit, pay down a significant amount of your debt to improve your credit utilization ratio. Most financial experts advise consumers to have a credit utilization under 30% for a good FICO score

FAQs About Consumer Reports 

As a borrower, will my credit history affect pre-employment background checks?

While pre-employment checks typically focus on criminal history, some employers do look into your credit history, especially for positions related to financial responsibilities. However, they receive a modified credit report, which doesn’t include your credit score but shows your credit habits, ensuring you’re responsible in both professional and financial realms.

Can financial institutions see my full report or just my credit scores during a background check?

Financial institutions, when performing consumer checks, usually request a full report. This is because, unlike a simple credit score, your full report provides a comprehensive view of your financial behavior, including your available credit, which helps them make informed decisions.

What’s the difference between criminal background checks and the checks performed by lenders?

Criminal background checks focus primarily on your criminal record, ensuring you have no history that might be of concern to an employer or landlord. On the other hand, lenders are more interested in your credit history and credit scores, as they want to assess your reliability in repaying loans or credit.

I’m new to credit. How might not having a credit history affect background checks?

No worries! Everyone starts somewhere. Not having a credit history can make some aspects of financial life more challenging since lenders and some employers can’t see your credit habits. However, it doesn’t impact criminal record checks. As a personal finance writer might suggest, consider building your credit with responsible borrowing and timely payments.

Will all employers conduct a check during pre-employment background checks?

Not all employers will check your credit. It’s more common in industries or positions where you’re handling money or sensitive financial information. Rest assured, employers need your permission to check your credit, and they receive a modified credit report, not your full financial details.

Can I refuse a credit check for a pre-employment background check?

Absolutely, you have the right to refuse a credit check. However, keep in mind that doing so may impact your potential employer’s decision-making process, as credit checks are often a standard part of pre-employment background checks for certain roles.

How often do lenders or financial institutions perform background checks? Will it affect my credit score?

Lenders typically perform a background check when you apply for new credit, and these are known as ‘hard inquiries,’ which can slightly affect your credit scores. However, routine checks, like account reviews by your credit card issuer, are ‘soft inquiries’ and don’t impact your score. Remember, it’s all about trust — showing you’re a responsible borrower is key!

A Note From CreditNinja on Credit or Financial Checks

Now that you know how background checks differ from credit checks, you can take steps toward improving your personal finance and preparing for a background screening. 

At CreditNinja, we prioritize financial literacy. That’s why we offer a free online blog with information on almost any financial topic. Learn how to build credit without a credit card, how to get money from Venmo without a bank account, and much more!

References: 

  1. Must-Know Background Check Statistics for 2023 │ DataProt
  2. Why employers check your credit score and what they can see │ CNBC
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