Your credit can influence several aspects of your life, from the amount of money you can charge on your credit card to your ability to qualify for a mortgage. But your credit can affect more than just your ability to spend money. It can also affect your ability to make money.
Is That Legal?
Yes. While employers can’t look at your credit score, they can check your complete credit report and use that information to influence their hiring decision. During the application process, applicants must give permission for the organization to access their credit report.
While U.S. employers can legally check credit histories, they also have a legal obligation to tell an applicant if they’ve been turned down because of credit reasons. They’re required to give a “summary of rights” that explains which company they obtained the credit report from and how to contact the company if you have questions about the report or would like to dispute an error.
What Does Your Credit Report Say About You?
According to the Federal Trade Commission, the most common background checks employers use are criminal background and credit report checks.
Your credit report generally includes your name, current and past addresses, Social Security number, birthdate and previous employers. Employers use this as part of your background check to verify that you are who you say you are.
Here, you can see all your loans, credit cards, balances and payments in one place. Many employers look at your credit history to see the obvious: how you’ve managed your finances.
Seeing how you’ve handled your own money in the past may be an indicator of how you’ll manage someone else’s money in the future. Similarly, if you’re responsible with your own finances, you’re probably responsible in many other areas of your life, including at work.
Public records include bankruptcies, tax liens and civil judgments (for example, a civil lawsuit or child support case). This gives insight into larger issues that go beyond missing a payment or two.
For instance, applicants may not know how to fully handle their finances on their own. Similarly, they could be distracted with their own issues and not put work first. Either way, employers may see red flags in a variety of situations.
What Employers Are Looking For
A study from the Society for Human Resource Management (SHRM) found that nearly half of employers check an applicant’s credit during the hiring process, but the top two reasons they check are to reduce or prevent theft and reduce legal liability for negligent hiring.
Employers understand that things happen, so if your credit is less than stellar, that’s OK. A few missed payments and even bankruptcies can happen to responsible people.
But just like criminal background checks, employers want to weed out the people who have made several poor choices (like continuing to purchase big-ticket items while already carrying substantial debt). They want to make sure they aren’t putting irresponsible individuals in positions where they may be tempted to steal money from the company or compromise private client information.
Will Credit Really Impact My Chances of Getting Hired?
The importance of credit is more or less relevant depending on the position and career field you’re applying for. Credit may not be as important for someone applying for a position as a cook or a copywriter. However, if you’re applying for a position where you’ll be handling company or client money and clients’ personal information, it’s more relevant.
In some cases, your credit can disqualify you for a position. An example of this would be a mortgage banker position. In order to get licensed, certain credit requirements must be met. If an applicant has serious red flags on their credit report that are likely to disqualify them from obtaining licenses in the future, an employer may pass that applicant up for someone who has a better chance of getting licensed.
Typically, human resource teams try to investigate each situation and look at the individual factors influencing an applicant’s credit report before coming to any conclusions.
If the applicant missed bill payments, did they miss them all around the same time, or has it been occurring for years? If they have debt in collection, is it because they lived outside their means, or did a difficult divorce hurt their ability to pay?
The same SHRM study found that of organizations that conducted credit background checks, 80% of the applicants they hired had at least one piece of negative information on their credit report. This shows that most individuals have something negative on their report and have still been hired in spite of it. If your credit has been hurt by one or two events or choices, in most cases, it shouldn’t hurt your chances of getting the job.
Understand Your Credit Report Before You Apply
Prior to applying for jobs, get a copy of your complete credit report so you know in advance what’s on it. Nearly one in five consumers have errors on their credit report, so check the accuracy of yours. If there are errors, correct them before an employer has a chance to see them.
If you do have potential red flags on your report, you have the right to add a 100-word statement disputing or defending the issue. Employers want to understand your situation, so if there’s more to the story than you just didn’t pay your bills, you can explain it. Don’t let employers come to their own conclusions; if you lost your job, had outstanding medical bills or got divorced, say so.
Even if you’re not actively searching for a job, you should understand what’s on your credit report. Rocket HQ gives you your complete credit report, allowing you to see your score and understand what’s impacted it. It’s important to your financial well-being to keep up to date on your credit and understand how you can use it reach your goals. Visit Rocket HQ and keep reading the Zing blog for answers to all your credit questions!
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