Having a less-than-stellar credit report can cost you in many ways. It can cost you in higher interest on loans and credit cards, the ability to obtain new credit or even that nice, new apartment. Most people know all this. However, one thing many people aren’t aware of is that bad credit can cost you your dream job.
The Slippery Slope
Many employers will not only look at a potential employee’s résumé and work history but also at the person’s credit report as part of the hiring process. It can be a slippery slope. Say you lose your job. While you’re looking for a new job, you begin to fall behind on your bills because you have no income. Your creditors report your late payments to the credit-reporting agencies. You apply for a job and the potential employer pulls your credit report, sees your recent history, and passes you over for the job. Of course, you can refuse access, and if you do, the law prohibits the employer from obtaining your report. However, the potential employer does reserve the right to choose not to hire you, assuming that you have things on your report that you don’t want anyone to see.
A Numbers Game
Credit reports are all about numbers. They don’t put anything into context or give any explanation as to why you may have had difficulty making your payments. Often, late payments are less of a reflection on your habits than they are a result of a difficult situation, such as job loss, divorce, illness, or injury.
The report that the employer will see is a modified version of your credit report. This version doesn’t have details about your credit cards or loans, such as account numbers, your date of birth, or your spouse’s information, nor does it have your credit score. Mainly, employers are looking for late payments, judgments, liens, or bankruptcies.
When an employer checks your report, the “inquiry,” or viewing of your report, won’t affect your credit score as it does when a lender pulls your report. It’s recorded as a “soft” inquiry.
Why They Want Your Report
A credit report shows the employer how the applicant takes responsibility for financial obligations. While most companies look at your credit report to get an idea of your integrity or work ethic, financial institutions or companies that are hiring for positions that are responsible for handling money may consider you high risk if you have delinquencies or an exorbitant amount of debt. Positions that would allow access to confidential information also may prompt a credit check by employers.
Many people question whether a credit report is an accurate predictor of job performance. Is a failure to manage your own finances properly a good indicator of what your job performance will be? If you forget to pay your bills, does that mean you’ll be a forgetful employee? Some states, such as California, restrict the use of credit reports for hiring considerations because they feel it puts people at a disadvantage during tough economic times, and feel that their use is discriminatory.
What You Can Do?
The good news is there are things you can do to improve your credit report and improve your chances of landing a job, despite problems with your report.
If you’re job hunting, get copies of your credit reports from all three credit-reporting agencies: TransUnion, Experian, and Equifax, so you know what potential employers will see. It’s important to see all three reports because employers may look at all three or a single one.
Check for Errors
Check your report for any erroneous information. If you find any questionable items, dispute them with the credit-reporting agency. It’s common for reports to have errors, such as outdated information that should’ve dropped off the report after expiration, or information that was reported erroneously by creditors.
Start Fixing It
Pay off delinquent accounts, starting with those that are long past due. Don’t open any new accounts; instead, focus on the ones you do have. Make sure you pay your bills on time, as payment history carries the most weight on your report, accounting for 35% of your score.
If an employer requires a background check, ask what the details of that will be. Employers must disclose to you in writing that they’ll be retrieving your credit report, but it could get lost in the fine print if they’re doing a full background check. If you know they’ll find some derogatory information on your report, explain what they’re going to find and why it’s there. A lenient employer may overlook your credit issues if you’re upfront and honest from the start.
Because employers have to pay for every credit report they pull, they often don’t pull reports on every applicant. Instead, they utilize them after an offer has been made or for select positions. If you’re lucky, the employer won’t check your credit report until after presenting you with a job offer. By then, the company may be impressed with your skills and won’t give your credit report much weight. It also means you may be able to explain your financial situation.
No matter what your current job situation, getting your finances in order and improving your credit score will always pay off.