Your credit history can work for you or against you. Your proven ability to manage your money and meet your financial obligations is often viewed as an indication of your maturity and stability and can open many doors. Prospective employers view a strong credit history as a positive sign that you will meet your obligations and responsibilities to them as well. A poor credit history could result in not getting that dream job.

Employers Want Reliable, Responsible Employees

Employers have begun to take a serious look at credit reports and scores as another requirement for hopeful applicants. The types of employers who examine credit reports tend to be in the more professional career fields. While this may seem unfair and illogical to applicants, the reasoning behind it is rather simple. Employers are concerned that with bad credit, the employee will not be able to focus fully on the job at hand.

According to Tom Garmin, a leading expert for 25 years from Virginia Tech in the field of financial impacts on worker productivity, states that "Financially distressed workers are like a poison poured on the floor of the workplace. You can’t see the poison, but it’s there.  It permeates more than just the employee who has a problem.  It permeates the workforce.”  He also notes that “About a third of employees say that financial problems are affecting their job performance...  Wasting about 20 hours of work time a month dealing with money problems, according to research on employees in 25 states.  (click here for article)

What’s more, employers don’t want the day disrupted by persistent calls from bill collectors to their employees. This is a valid concern since the more tenacious of bill collectors have been known to harass debtors at their places of employment.
Potential employers may use your credit history to determine whether or not you are a good risk. If you’re a poor credit risk, you may also be seen as a poor employment risk. According to an article on The Wall Street Journal Career website, a survey by The Society for Human Resource Management found that 35% of employers checked credit reports. That was in 2003…up from 19% in 1996. It's even higher today.

Your employment history is not part of your credit score, but your credit score could be factored into your chances of getting a job. A good credit score could also give you an edge if a potential employer runs a credit check for applicants.
If you're interviewing for a position that involves finances, confidentiality, and handling money then it's likely that your employer will run a credit check before they make you a job offer. Some companies check applicants' credit regardless of the specific position under consideration.

Many employers believe running an employment credit check is an absolute must if the applicant under consideration will be handling money, or be placed in a position of financial trust, sighting a possible correlation between high debts and, for instance, the possibility of embezzlement.

Credit history may reveal several qualities of an applicant's financial status, such as debt load and potential debt load. The employment credit report can identify the possibility of financial problems that may adversely affect an applicant's performance on the job.

An employment credit report provides an easy-to-read insight into an applicant's financial responsibility as well as listing any aliases, bankruptcies, liens, judgments, credit cards, loans, mortgages, collections and summaries of the individual's payment patterns. Reports may also contain previous employers and addresses.

Overall, it's a reflection of a person's character. That's the assumption these companies make. Given everybody is equal in their backgrounds and skill set, if one person has a better credit score, you're probably going to be better off with that person. (insert story)

This is all part of the trend to use credit history outside of traditional lending. Insurers and employers have found that credit behavior does not exist in a vacuum and can be predictive of future behavior in other areas

So, you can see the consequences of bad credit are becoming more far-reaching every day. Of course, this is in addition to the usual pain and suffering caused by high interest rates, excessive fees and the unpleasantness of having to deal with progressively hungrier lenders as your credit history deteriorates.

4 Reasons Employers Pull Credit Reports

Gauge Responsibility.  Employers want to know if you are responsible, and one of the best ways to determine this is to run a credit check. This shows them your spending habits, your ability to pay back debt and your collection history.

Identity Verification.  In this new age of identity theft, employers must be very careful about who and how they hire. Running a credit check gives an employer an alternate means to verify a prospective employee’s identity, which is a plus for both the company and the employee.

Employment History Verification.  Another reason why prospective employers may run credit checks is to verify previous employment. Since an employee can write whatever he or she wants on a resume or application, many employers are careful about believing what's been written down.

Identify Candidates for Theft.  Although this is often considered discriminatory, employers often run credit checks to assess whether or not an employees is a likely candidate for workplace theft. If you have lots of unpaid debt and if you are harassed on a daily basis by creditors, an employer may feel that you would be more likely to steal from them.

Employment Credit Reports Contain Limited Data

An employment credit report is a modified credit report that helps potential and current employers make hiring and promoting decisions. This report contains much of the same information about your loans and credit cards that your credit report has listed. However, your marital status, year of birth, and account numbers are omitted from the employment credit report.

Know Your Rights

If you’re concerned about your credit history affecting your job prospects, here’s what you should know.

An employer needs your permission to run a credit check. The Fair Credit Reporting Act (FRCA) requires your written permission any time an employer hires a third party to conduct a background check. That includes running a credit report. Of course, you likely won’t get the job or promotion if you don’t agree. But failing to get your okay is an FCRA violation.

While other black marks can be used against you, technically a bankruptcy cannot. Under Title 11 of the U.S. Code, employers are prohibited from discriminating against someone who has filed for bankruptcy. Since most people have trouble paying their bills before they file, this is often a moot point -- the employer can point to that history as the reason for the adverse action. If an employer makes the mistake of citing your bankruptcy as the reason you were fired, not hired or denied a promotion, though, you might want to consult a labor attorney about a lawsuit.

An employer is supposed to tell you if credit information is used against you.

If an employer uses credit information to deny an applicant a job, fire a current employee, rescind a job offer or cancel a promotion, federal law requires the employer to do two things:

1) Before the adverse action is actually taken, the employer is supposed to provide the worker with a copy of the report and an explanation of the workers FCRA rights.

2) After the action is taken, the worker must be told which company provided the credit information, be given the company’s contact information and told he or she has a right to dispute the report’s accuracy.

Rather than go through all this, of course, many employers simply find a less complicated excuse to give you.

Your ability to dispute the information may be of limited use, as well. If your employer’s decision was based on erroneous data in your credit report, for example, it could take you months to get the problem corrected -- by which time someone else will have been hired for the position you wanted.

Let's take a walk in the employer's shoes to understand.

An average corporation that screens potential employees shells out more than $1,000 before the applicant punches the clock the first time. Depending on the position, it can take as long as a year of productive service from the employee before this money is recouped. Just like every business, they want a return on the investment.

What is the harm in a credit report? Look at the history. Those with a disparate amount of debt to the potential income of the job will be in financial straits. This makes the employee more susceptible to opportunities to supplement their income. Do you see a red flag yet? Look more closely.

Employees with more than one job are more likely to be absent and tardy given their scheduling. This lost time represents lost productivity for the employer and insufficient return on their investment.  Wage garnishment and creditor calls at work are other ways that bad credit can have an impact on an employee's productivity.

Potential employees may only have no criminal history because prior employers chose not to prosecute. People who are in debt or poor, even with a job, are more likely to steal than those that are comfortably living within their means. Even theft of company supplies represents a loss to the employer.

What about those with poor payment histories? That does not affect their professional skills, but it does testify to their ability to complete assignments. Debts are resultant of contracts where a service or product is provided with the promise of later payment. Potential employees who default on promises have a higher probability to fail to meet deadlines and expectations.

What about inquiries? If a potential employee has had multiple inquiries into their credit within six months of their application, the reasons for the inquiries are another red flag to a human resource director.

When applicants have attempted to obtain additional credit, many times it is indicative of a failure to steward their finances properly. This is more negatively punctuated when the credit is refused.

Applicants with many potential employer inquiries are a different risk. This person either does not stay on the job very long or they have been such poor candidates that they have not been chosen for other positions. Both instances are a warning to potential employers.

As an employer, would you trust someone who cannot manage their own finances to be in a position of responsibility that could negatively impact your finances

 

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