Credit problems have the potential to complicate your life in numerous ways. Beyond making it expensive (and sometimes impossible) to borrow money, bad credit could also create roadblocks in your professional life. In certain industries and roles, bad credit could make it difficult to get a job or promotion.
Many employers consider your credit and financial habits when you apply for a job, promotion, or security clearance. And if your credit is in poor shape, those issues could hold you back. According to reports, around half of U.S. employers use credit reports during the hiring review process.[1]
It’s important to understand why employers check credit reports for employment screening purposes and when it’s legal for them to do so. The guide below breaks down these details plus provides helpful tips on what you can do if bad credit is keeping you from getting a job.
Employers sometimes check credit reports as part of their risk management process. The purpose of an employment-related credit check is to protect the business from potentially hiring someone who could be untrustworthy or unreliable. Credit reviews are more common for jobs that involve financial responsibilities, handling sensitive data, security clearances, and other high-trust roles.
When an employer reviews your credit report, they might consider:
However, employers can’t see your credit score, income, medical bills, most public records (aside from bankruptcies), or other protected information like your date of birth, marital status, or race.[2]
Even without credit score access, a credit report can provide employers several key insights about job applicants. Credit reports may help employers:
If you’re worried that bad credit could keep you from getting a job, there are ways to prepare for your next employment application. (See below.) But keep in mind that building credit takes time. So, the earlier you start, the better.
Employers can legally deny you for a job due to a negative credit history in most states. Bad credit might also make you ineligible for certain security clearances or certifications—both of which could affect your employment opportunities.
If you have bad credit and apply for any of the following types of jobs, you’re more likely to run into problems.
While some consumer advocates question the fairness of using credit checks for employment screening purposes, bad credit remains a potential employment hurdle in many locations and industries. So, if you’re job hunting, you may want to ask the hiring manager upfront whether a credit check is part of the process. You can also check out the tips below to make sure your credit is in the best shape possible.
It’s legal for employers to access credit reports for pre-employment screening in most states. Yet there are a few places in the United States where employers can’t check credit reports or where doing so comes with restrictions.
At the time of writing, pre-employment credit checks are banned or restricted in the following states and cities.
Of course, even in places where it’s legal for employers to check your credit, there are rules that businesses must follow to access your information. Below are some of your legal rights as a job applicant where employment-related credit checks are concerned.
When an employer checks your credit, a soft credit inquiry is added to your credit report. This type of credit inquiry doesn’t have any negative impact on your credit score.[2]
Yet it’s also worth pointing out that only you can see the soft inquiries that appear on your credit report.[13] So, if you’re applying for multiple jobs (or promotions) in a short period of time, you don’t have to worry about how that might look to other employers.
Everyone’s financial situation is unique. But if bad credit is keeping you from getting a job (or if you’re worried it might be a roadblock), below are some tips that could possibly help you.
Before you apply for a new job, check your credit reports from each major credit bureau—Equifax, TransUnion, and Experian. You can access a free copy of each credit report once a week from AnnualCreditReport.com.[14] Since you’re not sure which credit report an employer will use during the pre-employment screening process, it’s best to review all three.
As you read your credit reports, make a list of any potential red flags you find including:
Also, be on the lookout for errors or signs of identity theft. If you discover these types of problems on your credit reports, it’s a good idea to contact the appropriate credit bureau and dispute the inaccurate information.
Next, make a plan to address any negative information on your credit report that’s not a mistake. Many negative credit items can remain on your credit report for seven to ten years.[15] Negative credit information can make it harder for you to get a job, buy a home, finance a car, and much more.
If you owe past-due balances on any debts, do your best to bring those accounts current ASAP. You could also consider calling creditors to see if hardship programs are available for temporary financial relief.
It’s also important to make sure your credit card debt is under control—for the sake of your job hunting prospects, your credit score, and your budget. And if you’re trying to pay down multiple credit cards at the same time, consider using the debt avalanche method to save money on interest charges.
You could also consider trying to settle collection accounts (assuming you can afford to do so). A collection account with a zero balance might demonstrate to an employer that you experienced financial struggles in the past, but you’ve taken steps to resolve that setback.
Although employers can’t see your credit scores, they can view your payment history during employment-related credit checks. As a result, it’s important to make paying your bills on time each month a priority. Recent and frequent late payments can be a red flag when you apply for a job.
Keep in mind that if you recently lost your job, it’s a good idea to revise your budget until you find new full-time employment. Even if you have an emergency fund, you’ll want to stretch those dollars as far as possible.
Consider gig work or a side hustle (at least in the short term) to help maintain on-time payments. According to the Economic Policy Institute, unemployment benefits average just 40% of a worker’s former wages.[16] FlexJobs also notes that it takes most people an average of three to six months to find a new job.[17] So, planning ahead is essential.
If your credit issues are recent and tied to a hardship (e.g., job loss, illness, medical debt, etc.), consider writing a letter to explain your situation to prospective employers. You can include this letter with future job applications and it could help smooth the way in certain situations.
When writing a credit explanation letter, be sure to include:
Not all employers will accept such a letter and some employers might still want you to resolve outstanding credit issues before considering you for a job, promotion, or security clearance. Yet in certain cases, an upfront explanation letter could be enough to tip the scales in your favor—especially if the rest of your job qualifications are strong.
It’s understandable to feel anxious about the fact that bad credit has the potential to hold you back when you’re looking for a new job. But it’s also important to remember that your credit history isn’t the only factor that matters in a job interview. Your skills, experience, professionalism, and work ethic are also highly relevant factors during a job search.
Also, remember that not every employer checks credit. And even among those who do, there are actionable steps you can take to get ahead of potential issues.
If you’re job hunting and worried that your credit might hold you back, don’t panic. Instead, make a plan. Become familiar with the information on your three credit reports and decide the best ways to take care of those issues—even if you can only do so in small, baby steps. From there, consider writing an explanation letter for prospective employers that details any financial hardship you experienced and the steps you’re taking to fix those problems.
You may not be able to overcome all of your past credit problems overnight. But a little preparation could go a long way toward helping you land the job you deserve.
Michelle Lambright Black is a nationally recognized credit expert with two decades of experience. She is the founder of CreditWriter.com, an online credit education resource and community that helps busy moms learn how to build good credit and a strong financial plan that they can leverage to their advantage. Michelle's work has been published thousands of times by FICO, Experian, Forbes, Bankrate, MarketWatch, Parents, U.S. News & World Report, and many other outlets. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).
Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s).