Is A Credit Check Included In A Background Check?

Are you wondering if a background check also includes a credit check? It’s important to know that a background check does not always involve a credit check. In cases where a credit check is necessary, the report received may be modified. However, it’s worth noting that unlike lenders, employers do not have access to credit scores. Consumer reports are commonly required by lenders, employers, landlords, and others. If you’re considering renting an apartment, it’s good to be aware that 68% of renters pay application fees to cover tenant screening reports.¹ This article aims to provide you with a comprehensive understanding of background checks and the information they typically contain.

What is Included in a Background Check?

A background check is a helpful tool to confirm your identity and ensure that the information you have provided is accurate. It allows potential employers or landlords to verify your personal identifying details. There are different types of background check services available, each providing various information. However, all of them focus on the person’s criminal record, which is the primary purpose of the check. Some services may also include details about your educational degrees, employment history, driving record, and important civil records. Prospective employers and landlords use background checks to ensure there are no concerning criminal records. It is a way to ensure your good character and trustworthiness.

Criminal History

In some cases, conducting a criminal history check is necessary for specific sensitive jobs or for employers aiming to create a safe workplace environment. For landlords, background checks help in maintaining safe apartment complexes and neighborhoods. If you have already answered questions about your criminal history on the apartment or job application, these checks allow for fact-checking to ensure the accuracy of the information you have provided.

Can Background Checks Include Your Credit?

Yes, background checks can include information from your credit report. However, it is important to note that a thorough credit check is more comprehensive when conducted separately. In situations where both a credit check and background check are required, they are typically conducted simultaneously.

What’s Included In a Credit Check?

Credit or financial checks are very common and necessary whenever you apply for new credit. These checks provide a glimpse into the overall state of your finances, confirming whether you are financially responsible or may be facing some financial challenges. Employers, lenders, credit card companies, and landlords rely on credit reports to assess your creditworthiness and reliability. Therefore, it’s crucial to understand how to read a credit report. If you have bad credit, you may be tempted to seek lenders offering a $700 loan with no credit check. However, it’s important to note that loans without credit checks often come with unfavorable terms and high fees.

Credit Report

You have three credit reports, each from one of the three major credit bureaus: TransUnion, Experian, and Equifax. It’s important to understand that different creditors may pull your report from different bureaus, which is why all three credit reports are significant. Each credit report contains basic financial information about your credit history. Your report will resemble something like this:

Personal Details

Every credit report includes personal information to identify you accurately. These details are not used to calculate your credit score but are necessary to ensure the correct report is being referenced. Personal details usually include your full name, date of birth, Social Security Number, previous and current addresses, phone numbers, and employer information.

Credit Accounts

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

Credit Inquiries

Whenever credit checks are performed, they appear as hard inquiries on your credit report. It’s worth noting that applying for a credit card or loan can negatively impact your credit score. Too many hard inquiries within a short period can have an adverse effect. However, checking your own credit or being pre-approved are considered soft inquiries and won’t harm your credit.

Public Record & Collections

Credit bureaus will also include public records from state and county courts relating to credit issues. Examples of records that may appear in your credit report include foreclosures, repossessions, and bankruptcy filings. If you miss too many payments, your account may be handed over to a debt collection agency. The past due accounts reported by collection agencies will appear as derogatory marks on your credit report.

Credit Score

Your credit score is calculated using five components of information from your credit report. Each of these categories contributes a certain percentage to the three-digit credit score, which is heavily relied upon in credit checks:

Factor	Description	Impact on Credit Score
Payment History	Records of your payments on financial accounts, including any late or missed payments.	35%
Amounts Owed	Total debt you have compared to your credit limits (credit utilization rate).	30%
Length of Credit History	The age of your oldest credit account, the age of your newest credit account, and the average age of all your accounts.	15%
Credit Mix	The types of accounts you have (mortgages, auto loans, credit cards, etc.).	10%
New Credit	The number of recently opened credit accounts and recent inquiries into your credit report.	10%

Why Do Employers Check Your Credit?

Curious about why employers check your credit? While it’s common for landlords and lenders to review your credit report, you may wonder what purpose it serves when it comes to employment. Let’s shed some light on this! When employers request credit reports for job applications, they typically receive a modified version that doesn’t include your credit score. Instead, they get an overview of your debt and payment history. Employers perform credit checks for various reasons, including:

• Checking your consumer report helps them ensure your trustworthiness and security.
• Some small businesses want to see if you handle your finances responsibly and reliably.
• If you have excessive debt, it may raise concerns about potential fraud or theft.

It’s important to note that not all employers check credit for the same reasons. However, it’s a good idea to make sure your credit report is in good shape in case you apply for a job that requires a credit check.

Helpful Tips for Improving Your Credit History

To better prepare for credit history checks, there are some actions you can take to boost your credit score and improve your credit report. Here are a couple of things you can do to make a positive impact on your credit report:

Regularly Check Your Own Credit Report

Thanks to the Fair Credit Reporting Act, you have the right to receive a free credit score and report from each credit bureau once a year. Checking your own credit report annually is one of the best things you can do for your financial well-being. It allows you to quickly identify any inaccuracies and determine areas for improvement.

Lower Your Credit Utilization Rate

If you have limited available credit, paying off a significant portion of your debt can help improve your credit utilization ratio. Financial experts generally recommend keeping your credit utilization under 30% for a good FICO score.

Frequently Asked Questions about Consumer Reports

1. Will my credit history affect pre-employment background checks as a borrower? While pre-employment checks mainly focus on criminal history, some employers might also consider your credit history, especially if the job involves financial responsibilities. However, they receive a modified credit report that does not include your credit score. This report only shows your credit habits to ensure you are responsible both professionally and financially. 2. Can financial institutions see my full credit report during a background check or just my credit scores? Financial institutions usually request a full credit report when performing consumer checks. Unlike a simple credit score, your full report provides a comprehensive view of your financial behavior, including your available credit. This helps them make informed decisions. 3. What’s the difference between criminal background checks and the checks performed by lenders? Criminal background checks focus mainly on your criminal record to ensure you don’t have any history of concern to employers or landlords. On the other hand, lenders are more interested in your credit history and credit scores to assess your reliability in repaying loans or credit. 4. How does not having a credit history affect background checks for newcomers to credit? No worries! Everyone starts somewhere. Not having a credit history can make some aspects of financial life more challenging since lenders and some employers cannot see your credit habits. However, it doesn’t impact criminal record checks. To build your credit, consider responsible borrowing and making timely payments. 5. Will all employers conduct credit checks during pre-employment background checks? Not all employers will check your credit. It’s more common in industries or positions where you handle money or work with sensitive financial information. Rest assured that employers need your permission to check your credit, and they receive a modified credit report without your full financial details. 6. 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 this decision 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. 7. How often do lenders or financial institutions perform background checks and will they affect my credit score? Lenders typically perform a background check when you apply for new credit, which is known as a “hard inquiry” and can slightly affect your credit scores. However, routine checks like account reviews by your credit card issuer are considered “soft inquiries” that do not impact your score. Remember, building trust as a responsible borrower is key!

Hello from Pachyy! Some Insights on Credit or Financial Checks

We wanted to share some helpful information about the difference between background checks and credit checks. Understanding this can empower you to enhance your personal finances and get ready for a background screening. Here at Pachyy, we truly value financial literacy. That’s why we have created a free online blog where you can find a wealth of knowledge on almost any financial topic. Discover techniques for building credit without a credit card, learn how to access funds on Venmo without a bank account, and so much more! Take a look at these references for more information:

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