Dec 14

How a Credit Check Can Discredit a Job Applicant


Like it or not, many employers think a job applicant’s credit history says something about his character. Nearly half of all employers now run credit checks on job applicants.1 If you think an employer will never discover your credit history, think again. Consumer credit reporting agencies – usually Experian, Equifax, and Transunion – have credit files on over 220 million Americans. That’s 77% of the nation’s adult population. Fortunately, the California Consumer Credit Reporting Agencies Act (CCRAA) imposes severe penalties, including punitive damages, on employers who improperly request or use “consumer credit reports” for “employment purposes.”

Use of Credit Reports for “Employment Purposes”

The CCRAA defines a “consumer credit report” as any written, oral, or other communication of any information by a consumer credit reporting agency bearing on one’s “creditworthiness, credit standing, or credit capacity.”2 No employer can use such a report for “employment purposes,” i.e., for evaluating the eligibility of a consumer for hire, promotion, reassignment, or retention, unless the consumer seeks one of eight types of positions, including, but not limited to, positions that involve access to confidential or proprietary information; regular access to a person’s bank or credit card account information, Social Security number, and date of birth; or regular access to $10,000 or more in cash during the workday.3

Even if an employer can get a hold of a consumer credit report, he must provide the consumer with written notice of his intent to seek the report.4 The notice must, among other things, (1) identify the applicable exception to the ban on the use of credit reports for employment purposes (e.g., the position involves regular access to $10,000 in cash during the workday); (2) disclose the source of the report; and (3) contain a box that the consumer can check off to receive a free copy of the report.5 If an employer refuses to hire, promote, reassign, or retain a consumer at least in part because of the report, the employer must so advise him and give him the name and address of the agency that made the report.6

Prevention and Punishment of Credit Report Misuse

If an employer violates the CCRAA, he’ll be the one whose credit score takes a hit. For a negligent violation, a consumer can recover actual damages, including lost wages and pain and suffering.7 For a willful violation, he can recover actual damages, punitive damages of $100 to $5,000, and “any other relief that the court deems proper.”8 For any violation, he can recover actual damages of at least $2,500 if a “natural person” obtains the credit report under false pretenses or knowingly and without a permissible purpose.9 (The consumer can only recover the damages from the “natural person.”)10 In all cases, the court must  award a prevailing consumer, but not a prevailing employer, attorney’s fees and costs.11

For many consumers, an ounce of prevention is worth a pound of cure. Under the CCRAA, a consumer can get an ounce of prevention by mailing a consumer credit reporting agency a request for a security freeze on his credit report. The security freeze will bar the agency from releasing his credit report or any information in it without his express consent.12 The agency must freeze the credit report within three business days after it receives the request.13 Even better, the agency can’t charge a consumer age 65 or over for the freeze and can only charge a consumer under age 65 up to $10.14 The only catch is that an agency can advise an employer that a security freeze on the credit report is in effect.15

  1. Amy Traub. Discredited: How Employment Credit Checks Keep Qualified Workers out of a Job

  2. Civ. Code §1785.20.5(c). 

  3. Lab. Code §1024.5(a). 

  4. Civ. Code §1785.20.5(a), (f). 

  5. Id

  6. Civ. Code §1785.20.5(b). 

  7. Civ. Code §1785.31(a)(1). 

  8. Civ. Code §1785.31(a)(2)(B), (C). 

  9.  Civ. Code §1785.31(a)(3). 

  10. Heaton v. Soc. Fin., Inc., No. 14-cv-05191-TEH (N.D. Cal. Oct. 15, 2015.)  

  11. Civ. Code §1785.31(d). 

  12. Civ. Code §1785.11.2(a). 

  13. Civ. Code §1785.11.2(b). 

  14. Civ. Code §1785.11.2(m)(1). 

  15. Id

Ben Rothman, Esq.

Ben Rothman is a Los Angeles-based attorney practicing in the areas of personal injury, employment, and workers' compensation on a "no recovery, no fee" basis. Call him at (424) 465-2948 for a free, no-obligation consultation.