Does Background Check Affect Credit Score? I know most times, this is what most applicants think about when going for a job interview. The sincere truth is that, often time it doesn’t and some times it does.
On this article, you get to know how it can and why a background check is conducted by the employee. I will also be digging deep to understand the relationship between a background check and a credit score.
Background Check: In details
Background checks are becoming increasingly common as businesses, organizations, and individuals try to safe guard against theft and violence. A background check doesn’t affect your credit score, but they can impact your chances of getting a job.
They are two basic types of background check; Hard and Soft credit inquires.
Hard and Soft Credit Inquiries: What they are and When they are Requested
There are two main methods by which an individual or organization can conduct a background check on your credit score. The first is a hard inquiry, which is what many consumers think of when they think of credit inquiries that negatively impact on credit scores.
Hard Inquiries (Hard Pulls)
It generally occurs when a financial institution, such as a lender or credit card issuer, checks your credit when making a lending decision. They commonly take place when you apply for a mortgage, loan or credit card, and you typically have to authorize them.
A hard inquiry could lower your scores by a few points, or it may have a negligible effect on your scores. In most cases, a single hard inquiry is unlikely to play a huge role in whether you’re approved for a new card or loan.
Multiple hard inquiries in a short period could lead lenders and credit card issuers to consider you a higher-risk customer. As it suggests you may be short on cash or getting ready to rack up a lot of debt.
How long will a hard inquiry stay on my credit reports?
Generally speaking, hard inquires stay on your credit reports for about two years.
When are they required?
Auto loan applications
Credit card applications
Student loan applications
Personal loan applications
Apartment rental applications
Soft Inquiries (Soft Pulls)
Typically occur when a person or company checks your credit as part of a background check. This may occur, when a credit card issuer checks your credit without your permission to see if you qualify for certain credit card offers. Your employer might also run a soft inquiry before hiring you.
Unlike hard inquiries, soft inquiries won’t affect your credit scores. (They may or may not be recorded in your credit reports, depending on the credit bureau.) Since soft inquiries aren’t connected to a specific application for new credit, they’re only visible to you when you view your credit reports.
Will checking my own credit scores result in a hard inquiry?
No. This is reported as a soft inquiry, so it won’t lower your scores.
When they are required?
“Pre-qualified” credit card offers
“Pre-qualified” insurance quotes
Employment verification (i.e. background check)
Why Do Employers Run Background Checks?
Here are some reasons why employers run background checks;
To determine if a candidate is a good fit for a specific position as well as the company or organization as a whole.
It helps an employer identify an individual who may represent a risk, for example to other employees, the budget, or even the brand.
When a potential employer runs a background check on a candidate, they can access a variety of information, including the individual’s driving record, criminal record, education, and court judgments.
Some background checks can uncover facts about your financial history, including your credit history.
The employee uses it in screening candidates for managerial positions or positions that are closely linked to a company’s finances, for example.
Lots of late payments could indicate you’re not very organized and responsible, or don’t live up to agreements
Using lots of available credit or having excessive debt are markers of financial distress, which may be viewed as increasing the likelihood of theft or fraud
Any evidence of mishandling your own finances could indicate a poor fit for a job that involves being responsible for company money or consumer information.
How Can You Prepare For a Credit Check?
Checking your own credit proactively lets you see what an employer would If you spot errors, get them corrected by using a dispute process. Once you’ve done that, keeping your credit report in good condition is a smart financial move and it will protect your credit score. Here’s how:
Pay all bills on time. Payment history has the single biggest influence on your credit scores. Therefore, making on-time payments helps your score while also keeping delinquent marks off your report.
Use available credit lightly. Experts say it’s best to use less than 30% of your available credit on any card at any time and lower is better.
Monitor your credit report regularly.
Finally, background checks are considered soft credit inquiries, so they do not lower your credit score.
Your credit scores play a big role in your financial well-being. Before applying for that job, take time to build your credit scores. With stronger credit, you will get a chance of being employed.