Credit Checks: The Sleeper Risk to Watch For

Author: Brightmine Editorial Team

Credit checks are not new. Employers have been using them for years to assess and mitigate hiring risks - especially when it comes to sensitive positions involving a lot of money and/or confidential information.

What is new, however, is an increasingly active regulatory environment. Hiring-related credit checks are often restricted at the state and local levels. Exposure risks are growing. You may think of credit checks as a routine screening tool, but they are frequently prohibited unless a narrow exception applies.

What Is a Credit Check?

Credit check is a broad term that covers, among other things, requesting, obtaining or using a person's credit history to inform hiring, promotion and termination decisions. Specific information may vary from jurisdiction to jurisdiction, with some states or localities covering more information than others.

The Patchwork Problem

While the federal Fair Credit Reporting Act (FCRA) imposes numerous procedural rules about how employers must disclose and conduct background checks (including credit checks) on applicants and employees, no federal law generally prohibits checking credit information for employment purposes.

In the absence of federal action, however, states and municipalities are increasingly passing their own laws that provide greater protections to employees and applicants.  

In April 2026, for example, New York implemented a broad prohibition on employers using credit history in employment decisions. Subject to limited exceptions, employers cannot request or use an applicant or employee's consumer credit history in any way with respect to employment. New York City's longstanding protections are even more employee-friendly and apply to employers with as few as four employees.

Here are the states that currently impose credit check restrictions on employers (again, the list is growing all the time):

• California
• Colorado
• Connecticut
• District of Columbia
• Hawaii
• Illinois
• Maryland
• Nevada
• New York
• Oregon
• Vermont
• Washington

Penalties Can Be Steep

States are not messing around when it comes to noncompliance with their credit check laws. 

Maryland, for example, does not ban credit checks but strictly limits their use. Employers who fail to comply with the law potentially face a $500 to $2,500 civil penalty per violation.

In Nevada, the stakes are even higher: The state credit check law includes a strict penalty provision that could require noncompliant employers to pay up to $9,000 per violation to the state labor commissioner, on top of any legal relief a rejected job applicant or employee may obtain in a lawsuit against an employer.

Additionally, because employers' credit check missteps generally affect multiple individuals, class action risks and penalties can mushroom quickly.

What You Can Do

It's a tough regulatory environment for employers these days, but there are steps you can take to protect yourself:

• Limit the use of credit checks: Ideally, you should restrict credit checks to positions where there is a strong, documentable connection to financial responsibility or risk. Avoid blanket policies, especially if you operate in multiple states.
• Stay current on applicable state and local laws: Your liability may be broader than you think, especially if you are recruiting applicants from around the country.

• Audit your process regularly: Advancements in AI, in particular, can save you a lot of time but also increase your legal risks if you don't know exactly how the tools work and what data they are relying on.
• Watch out for disparate impacts: Conduct periodic assessments to understand whether credit checks may disproportionately affect individuals in protected categories - and whether adjustments are needed.
• Keep an eye on all steps of the process: Even when credit checks are permissible, you still need to ensure you (and your vendors!) are complying with all disclosure, recordkeeping and confidentiality rules.