How bad credit affects employment opportunities

By Doug Matus

Everyone recognizes bad credit as a lifestyle impediment. If your score is low, you can count on difficulties with loan and credit applications, and even housing rentals and utility deposits. As if these weren’t punishment enough, a bad credit score can even impact a person’s chances at employment.

While a handful of states passed laws that protect against credit-based discrimination, a majority allow employers to use credit checks as they see fit. That’s right: depending on where you live, even if you have every qualification for a job, you may still get passed over on the basis of your credit score.

Before you begin your next job search, you’ll first want to understand the laws in your state. If you live in a state where credit can bear upon employment, you’ll want to understand how bad credit can affect your hiring and the rationale behind employer’s decisions.

Routine Checks

Forty states currently have no legislation to protect against credit-based discrimination for employment. While the laws may change, in the meantime, credit checks have become a routine procedure among many employers.

“The latest survey from the Society for Human Resource Management says that 47% of companies conduct credit checks when hiring,” says Louis DeNicola, head of content for Saveful. “Those applying for money-handling jobs, finance, or positions that require security clearance may be more likely to have their credit checked.”

While those who apply for financial positions can almost certainly count on a credit check, the use of the practice in unrelated industries shocks and bewilders many applicants. The rationale for many employers is twofold: worry over the misuse of personal information of coworkers and clients; and a belief that bad credit indicates a general lack of dependability.

What Employers Look For

It’s important to note that employers do not see the same credit scores that get pulled at the bank. Additionally, an employer credit check omits private information such as your age. What employers do receive, however, are indicators of financial irresponsibility.

“They’re looking for derogatory marks on your report,” says Louis DeNicola, “such as late payments, bankruptcies and judgments. For employers, these may be indications of a lack of responsibility.”

Though hotly debated, the use of credit checks to judge a potential hire’s level of responsibility remains a popular tactic. Companies will also use credit checks to differentiate between candidates. As Scott Trench, director of operations at BiggerPockets, Inc., explains:

“Many folks just don’t understand why an employer would care about your credit. The fact of the matter is that a poor credit score is in the vast majority of cases due to a history of poor financial choices. As an employer, I’d prefer the fellow who has paid attention to his finances and made good life choices, all else being equal. That’s just good business.”

Improve Your Chances

If you are worried about the impact that your credit may have on job prospects, you should not sit idle. To get prepared, first get clear as to how your financial history actually looks. Learn how to read your credit report.

Employers understand that the job market is volatile, and that otherwise good people can get laid off and struggle with their finances. If you anticipate questions and offer good answers, many employers will overlook your bad credit.

To check your credit, you should request a copy of your report from each of the three major credit bureaus: TransUnion, Experian and Equifax. You can receive these reports for free once a year through annualcreditreport.com. If you’ve applied for a well-paid or high-level position, this becomes even more important. After all, employers do not bother to run credit checks on every single applicant.

“Most employers don’t check applicant’s credit unless the applicant is being actively considered for the position,” explains Louis DeNicola. “Having an explanation for any negative marks might be the difference between getting the job and missing out.”

About the Author

Doug Matus is a freelance writer who frequently contributes to the Self blog.

Written on November 3, 2015

Self is a venture-backed startup that helps people build credit and savings.
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Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

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