This story was produced and originally published by Wisconsin Watch, a nonprofit, nonpartisan newsroom.
When you apply for a job, you probably know that your potential employer will check your criminal record. But what about your credit history?
Employers in most states, including Wisconsin, are allowed to run background checks that show your debts, available credit and payment history. Wisconsin Watch asked experts what job seekers and employees should know about this process and their rights.
We spoke to:
● Nick Raef, employment attorney at law firm Hawks Quindel.
● Jeff Palkowski, state director of the Wisconsin State Council of the Society for Human Resources Management.
● Adriana Peguero, assistant city attorney for the city of Madison.
What kind of credit information can employers see?
Not all types of background reports show financial information. Those that do typically show your credit accounts, payment history, available credit, bankruptcies, liens and self-reported work history, NerdWallet reports.
The reports do not show your credit score, the three-digit number that lenders, landlords and insurers use to assess how creditworthy you are. They also don’t show your income, birth date, marital status or medical debts.
Unlike when you apply for a credit card or a loan, this is a “soft inquiry,” meaning it won’t affect your credit score and it won’t be visible to other employers or lenders.
Can an employer run a background check without my permission?
No. If employers want to use a third-party company to run a background check, they need written permission. That’s because of the Fair Credit Reporting Act, a 1970 federal law created to protect consumers from false information being included in their credit reports. The law requires that an employer provide “clear and conspicuous” notice in a stand-alone document.
“That means that if they throw the language into the boilerplate of an application, or scribble it in the margins of the position description, or fail to get your consent before pulling the report, then they are in violation of the law,” Raef, the employment attorney, said in an email. The employer can run the background check only if the employee or job applicant signs the document.
If employers want to run a background check later, like if they’re considering you for a promotion, they have to get permission again.
“It’s not the case that if you’re hired by a company that five years later they can go back and use the same acceptance of disclosure from when you were hired,” Raef said.
Notably, the protections of the Fair Credit Reporting Act apply only when employers use another company to run the background check, not when employers use the Wisconsin Circuit Court Access Program (CCAP) or other tools to check a person’s history themselves.
Can an employer use my credit history to make employment decisions?
Yes, though additional restrictions apply in the city of Madison.
If employers see something in the report that makes them choose to take an “adverse action” about your employment (for example, fire, demote or simply not hire), they must give you a “pre-adverse action notice,” along with a copy of your background report, details about the Fair Credit Reporting Act and an explanation of your rights, including the right to dispute the accuracy of the report and get another free report within 60 days.
“The notice must inform an individual that their decision was influenced by the report, but does not have to clarify what exactly within the report has led to the employer’s adverse decision,” Raef said. That, he said, can “leave individuals with little clarity as to the employer’s reasoning.”
The employer must allow time for the employee or applicant to respond before sending a final notice indicating the action the employer took.
Still, Raef said, employers might say they had other reasons for choosing a different candidate.
“Employers have the leeway to base their decision on a multitude of factors,” Raef said. “Oftentimes it can be really hard to sort of draw out what exactly happened here, and that’s where an employment attorney can be really helpful.”
In Madison, employers face stricter limits on how they can use credit history. That’s because credit history is one of the 30 characteristics denoted in the city’s equal opportunity ordinance, alongside homelessness, citizenship status, source of income and physical appearance.
“We have a very large, expansive number of protected classes,” said Peguero, the assistant city attorney.
Employers in Madison can make employment decisions based on credit history only if one of the following is true:
● They can demonstrate that the person’s credit history is “substantially related” to the job.
● The job requires that the person be bonded and the person’s credit history makes them ineligible. Some jobs, especially ones that involve handling money, valuables or proprietary information, require that employees be covered by a fidelity bond that will reimburse the employer if the employee steals or commits fraud. (Note: The federal government operates a little-known alternative bonding program for people who might otherwise struggle to find work, including those with poor credit. You can learn more about that program here.)
The ordinance applies within the city, so it covers Madison employers. It’s less clear whether it would apply to the growing number of Madison residents who work remotely for employers based elsewhere, Peguero said.
“That analysis would have to be done by the hearing examiner, but it is possible it could extend to an employer that is outside of the city of Madison,” Peguero said.
Why do employers check credit?
Employers may use credit history to assess how trustworthy or responsible a person is, Raef said. An employer may assume that an employee or applicant who has lots of debt, for example, may be more likely to commit fraud, embezzle funds or accept a bribe, especially if the person is in charge of company funds.
But Raef questions whether credit reports are useful in most employment decisions. “There’s not clear evidence that credit history is an indicator of an employee’s capacity to perform well in their job,” Raef said, pointing to a 2012 study that found no correlation.
“Someone might have poor credit on paper because of a domestic abuse situation in their home, or because they were born into really unfortunate circumstances that don’t reflect on their ability to be a great employee,” Raef said.
He worries that credit checks will create a “toxic loop” where the people who most need jobs can’t get them, which only makes their financial situation worse.
“I can see the employer’s side where there are limited and specific circumstances where these checks make sense, but as a broad application, I think that it leads to a lot of unfair employment practices and probably exacerbates existing biases that are systemic within our society,” Raef said.
A 2023 report by the Urban Institute, a national think tank focused on economic and social policy, echoes those concerns.
“Research suggests that workers with low wages are among those harmed by preemployment credit checks, in part because workers with low incomes are the most likely to have imperfect credit records,” the authors write, though they note there’s limited data on low-wage workers specifically.
How common is it for employers to run credit checks?
About half of U.S. employers conduct credit checks when hiring for at least some of their positions, according to a 2021 survey by the Professional Background Screening Association.
Jeff Palkowski leads the Wisconsin State Council of the Society for Human Resources Management. He has worked in human resources in Wisconsin for more than 20 years, mostly in the public sector in Madison. The closest he’s come to an employment credit check was when a friend applied to work at the FBI.
“Anecdotally, I have heard of instances where a credit check may be part of the pre-employment process, but only in rare cases … Personally, I have never filled a role that had a pre-employment credit check as part of the recruitment process,” he said.
Do all states allow employers to do credit checks?
No. As of 2023, 11 states had restricted the practice, according to the Urban Institute. Wisconsin has no state law restricting these checks.
What can I do if I think my credit report is wrong or if I think an employer used my credit history illegally?
If you believe there is a mistake on your credit report, you can dispute it by contacting the consumer reporting agency whose report showed the mistake. The agency must investigate.
“If they can’t verify the accuracy of the information, then they have to remove it,” Raef said.
If you believe an employer used your credit history inappropriately, Raef recommends contacting an employment lawyer.
“If they fail to notify you of a negative decision based on a report, or if they refuse to identify the source of the information that they obtained about you, or if they fail to get your permission at all, then you might be entitled to recover damages,” Raef said.
If you or the employer is located in Madison, you can also file a complaint with the city of Madison’s Department of Civil Rights, which investigates alleged violations of the city’s equal opportunity ordinance. You must file the complaint within 300 days of the incident.
Complaints are far less common than allegations of other kinds of employment discrimination, Peguero said. Of the 805 employment complaints submitted to the office between 2020 and 2025, just eight mentioned credit history.
How can I protect myself?
There are proactive steps you can take now to reduce the chance that a credit check will cause you unnecessary trouble.
“You shouldn’t wait until you have signed something allowing your employer to look into this,” Raef said.
He recommends the following actions:
● Request your own credit report to check for errors. You can do this for free once a year at www.annualcreditreport.com. If you find a mistake, report it.
● Place a freeze on your credit report to reduce the risk of identity theft, which can damage your credit. A credit freeze blocks anyone from opening a new credit account in your name. You can place a freeze for free online, but you’ll need to do it separately for each of the three nationwide credit reporting agencies: Equifax, Experian and TransUnion. You’ll need to lift the freeze any time you want to apply for credit. “It’s kind of a pain … but it’s worthwhile to do with the amount of pain that it could cause if not done,” Raef said.
Natalie Yahr reports on pathways to success statewide for Wisconsin Watch, working in partnership with Open Campus. Email her at nyahr@wisconsinwatch.org.
