Credit Reports Matter

Everyone knows it’s a good idea to periodically check your credit report. It’s important to not only keep tabs on your credit score, but also to watch for telltale signs of identity theft. Naturally, a high credit score is desirable, as it will impact your ability to get a loan or a good interest rate on a credit card. The power of your credit report goes much further than that, however. It can actually impact your ability to get a job.

Pre-employment credit checks are not only legal in most states, they are becoming increasingly commonplace. Once used primarily for positions in banking or financial service, credit checks are now used across the board by employers large and small.

According to a 2010 survey by the Society for Human Resource Management (SHRM), 13 percent of companies review credit reports on all candidates, while 47 percent check the credit of some candidates.

Under the Fair Credit Reporting Act, a potential employer must obtain a candidate’s written permission to view their credit report. Don’t worry, employment inquiries will not negatively impact your credit score. What the employer finds could impact their likelihood of hiring you, however.

Credit reports provided as part of the pre-employment screening process do not include the candidate’s actual FICO score. Still, they provide an overview of how much debt you have and whether you pay your bills on time. Such information allows a prospective employer to gauge how well you handle your personal finances.

Employers tend to look at long-term trends, not whether you missed a loan payment or forgot to pay your AmEx bill a couple of times. In particular, they are interested in any tax liens, foreclosures, bankruptcies, or judgments. Respondents to the SHRM survey said lawsuits or multiple accounts in collection are likely to quash a job offer.

Why are employers so interested in a candidate’s credit history anyway? Someone with poor credit or high levels of debt may be more likely to embezzle or steal from their employer. What’s more, it can be a hassle when collection agencies start calling the office or a court order to garnish wages is received. Many employers feel it is better to simply avoid such situations by not hiring a financially risky employee in the first place. 

In today’s economy, a greater percentage of job-seekers are apt to have some dings on their previously pristine credit reports. Unfortunately, employers are not required to give potential employees the opportunity to explain any red flags on their credit report. However, 65 percent of SHRM respondents routinely extend candidates that courtesy.

Some lawmakers have proposed bills prohibiting the use of credit checks during the hiring process, arguing they prevent those most in need of a job from getting one and several states, such as Illinois, Hawaii, Oregon, and Washington, have passed laws limiting employment-related credit checks to specific instances.

While legislators duke it out, you can always refuse to give a prospective employer permission to review your credit report, but doing so is basically akin to admitting credit problems. You might as well just remove your hat from the proverbial ring because your chances of getting hired are significantly diminished.

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