Does a Background Check Affect Your Credit Score?

How a Background Check Can Affect Your Credit Score

It’s a common concern: will a background check hurt your credit score? While it seems plausible, most checks for employment or housing are soft inquiries and won’t impact your score.

1. Application for Credit: The process begins when you apply for a financial product like a loan, mortgage, or credit card, which requires a detailed credit history review as part of the overall check.
2. Granting Permission: You must provide explicit consent for the lender to perform a “hard inquiry” on your credit report. This is a legally required step before they can access your detailed file.
3. The Hard Pull: The lender requests your full credit report from a major bureau. This action, known as a hard pull, is officially logged and becomes visible to other potential creditors viewing your report.
4. Direct Score Impact: A single hard inquiry can cause a minor, temporary dip in your credit score. Lenders view new credit applications as a potential risk, and scoring models reflect this accordingly.

How Much Will a Background Check Affect Your Credit Score?

The impact of a background check on your credit score depends on the type of inquiry. Here are the key factors to consider.

• Soft vs. Hard Inquiries. Most background checks are soft inquiries, which don't affect your credit score. Hard inquiries, often for loans or credit, can cause a small, temporary dip in your score.
• Employment Screening. When a potential employer runs a background check, it is considered a soft pull on your credit. This type of inquiry will not lower your credit score.
• Tenant and Loan Applications. Applying for an apartment or a loan may trigger a hard inquiry as part of the screening process. This can result in a minor, temporary decrease in your credit score.

How You Can Avoid a Background Check Affecting Your Credit Score

Understand the Type of Inquiry

Most background checks for employment are soft inquiries and won't impact your credit score. Hard inquiries, typically for credit applications, are the ones that can lower your score. Always clarify with the requestor which type of check they will be performing beforehand.

Use Tenant-Initiated Screening

When applying for rentals, consider services that let you run your own credit report. You can then share this single report with multiple potential landlords, avoiding numerous hard inquiries that could otherwise damage your credit score during your apartment search.

Provide Your Consent Wisely

Under the Fair Credit Reporting Act (FCRA), employers need your written permission for a credit check. This gives you an opportunity to discuss the scope of the inquiry and confirm it will be a soft pull that does not affect your credit history.

Ways to Improve Your Credit Score

Improving your credit score is always possible and plays a vital role in your overall financial life, affecting everything from loan approvals to interest rates. With consistent, positive behavior, you can boost your score, often seeing meaningful changes within just a few months.

• Monitor your credit reports regularly. Obtain your free reports from the three major bureaus to identify and dispute any inaccuracies, which can unfairly lower your score.
• Establish automatic bill payments. Since payment history is the most significant factor in your score, setting up automatic payments ensures you never miss a due date.
• Reduce your credit utilization ratio. Aim to keep your credit usage below 30% of your total available credit by paying down balances or requesting a credit limit increase.
• Become an authorized user. You can get added to the credit card account of someone with a strong payment history, which can help build your own credit profile.
• Diversify your credit mix. Lenders like to see that you can responsibly manage different types of credit, such as revolving credit cards and installment loans.

The Bottom Line

In most cases, a background check will not affect your credit score. Employers and landlords use soft inquiries, which are not factored into credit scoring models like hard inquiries are.

Frequently Asked Questions

Do all background checks look at my credit report?

No, not all background checks include a credit report. It's typically only requested for roles involving financial responsibility, security clearances, or senior management positions.

Can I be denied a job because of my credit report?

Yes, an employer can legally decide not to hire you based on your credit report, but they must inform you and provide a copy of the report.

How can I prepare for a credit check for employment?

You can prepare by reviewing your credit report for errors, paying down debts, and being ready to explain any negative items to the potential employer.