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Credit Reports and Credit Scores

Question: Does pulling an individual’s credit report for employment purposes affect his or her credit score?

Response and Analysis:

No. Pulling a credit report for employment purposes does not affect an individual’s credit score, and such reports do not include a credit score.

Under federal law, every time a request is made to a credit bureau for an individual’s credit report, that request must include the “permissible purpose” for which the report is being run. There are a variety of permissible purposes for credit checks, including for credit-granting purposes; for employment purposes; for routine checks on existing accounts or lines of credit; by court order; and others. The term “employment purposes” is broadly defined to include independent contractors and other contractual relationships, in addition to traditional employer/employee relationships.

Credit report checks conducted for employment purposes are most frequently used in hiring for positions involving monetary transactions, access to cash, access to confidential personal or financial information, or for other executive or management positions.

Inquiries for the purpose of granting credit, such as mortgages and loans, are known as “hard” or “above the line” inquiries. Inquiries for employment purposes are called “soft” or “below the line” inquiries. The “line” mentioned in the terms “above the line” and “below the line” refers to the layout of a printed credit file. All inquiries are listed at the bottom of the credit file. Credit-granting inquiries appear after the individual’s detailed financial information. Inquiries for employment purposes are listed at the very bottom of the report and are separated by a line and text indicating that the inquiries listed below are for employment purposes.

Credit bureaus devised the credit-score system to assist lenders in making a credit-granting decision. Credit scores are not intended to be used by employers in making an employment decision. The scores are based on statistical models assembled by the bureaus that indicate the likelihood that a consumer may default on a debt. While the credit bureaus consider these models proprietary and do not reveal their exact makeup, one of the factors included is the number of hard inquiries on a consumer’s file; applying frequently for new lines of credit can have a negative impact on an individual’s credit score.

However, the credit score models specifically exclude inquiries made for employment purposes. They do not count toward an individual’s credit score, hence the term “soft” inquiry. Only hard inquiries for the purpose of granting credit are considered by the credit bureaus. Therefore, any credit reports run for employment purposes will not affect an individual’s credit score.

Understanding credit reports is often complicated by the media or by misinformation on the Internet. It is not uncommon to hear a news report that states “credit scores might affect your ability to get a job.” While that might make for a good sound bite, it’s simply not true.

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This document and/or presentation is provided as a service to our customers. Its contents are designed solely for informational purposes, and should not be inferred or understood as legal advice or binding case law, nor shared with any third parties. Persons in need of legal assistance should seek the advice of competent legal counsel. Although care has been taken in preparation of these materials, we cannot guarantee the accuracy, currency or completeness of the information contained within it. Anyone using this information does so at his or her own risk.

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