How Can Your Credit Report Affect Your Ability to Get Hired?

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Photo: Andres Rueda

Here’s one reason to pay attention to your credit history: potential employers may use it as part of a pre-employment background check.

Under the Fair Credit Reporting Act, employers are allowed to request a copy of your credit report for employment screening. Here’s what you need to know about your credit report’s affect on your ability to get hired.

They Need Your Permission

Potential employers need your permission to pull a copy of your credit report. When you sign pre-employment screening paperwork, you may see a form that allows the employer to get this report.

If you don’t allow an employer permission to view your report, you might not get hired. If you do allow an employer permission to view your credit history, and if it’s terrible, you still might not get hired.

Your best bet is to give those employers who ask a chance to look at your credit report while doing everything you can to polish it up before you apply for a job.

A Special Kind of Report

While a credit report pulled by an employer will look very similar to one pulled by a potential lender, there are some key differences.

For instance, the credit report an employer can access doesn’t include the credit score assigned to your credit report based on the information in your credit file. Employers can’t request this number because it doesn’t have any bearing on your potential to be a good employee.

Also, a special Employment Inquiry doesn’t negatively impact your credit score, like an inquiry from a potential lender would. The inquiries from employers are “soft pulls” on your credit report, so they’re similar to you pulling your own report and have no effect on your score.

If an employer turns you down for a job at least partially because of your credit report, they’re required to tell you this. And if you receive such a pre-adverse action notice, you’ll also be entitled to a free copy of your credit report.

A Gauge of Personal Responsibility

Because background checks and credit reports aren’t free, employers generally only use these tools on job candidates in whom they’re seriously interested. So if you’re asked to give a potential employer permission to access your background and credit report, congratulations! You’re most likely on a list of top candidates.

But your credit report can still sway a potential employer. While employers follow strict rules about how they’re allowed to use information, especially rules about discrimination, they are still allowed to use the information in your credit report to influence their hiring decision.

The main way that employers use credit reports is as a gauge of overall responsibility. Because retailers lose more than $30 billion a year to employee theft, many employers look for signs of financial difficulties that could potentially drive employees to theft.

Others see correlations between a good credit report and generally responsible behavior. In other words, if you pay your bills on time, employers might assume you’re more likely to meet work deadlines, too.

How Effective is It?

The use of credit reports to gauge employability is controversial. So controversial, in fact, that eight states – California, Connecticut, Illinois, Hawaii, Maryland, Oregon, Vermont and Washington – have laws that restrict how credit reports can be used in hiring (even more than federal law does). Other states are working on similar legislation.

One of the most obvious problems with using credit reports in pre-employment screenings is that those who are in the job market out of necessity are more likely to have negative information on their credit reports. If you lose your job and can’t pay your bills, you’ll have dings on your credit report, making you less employable. But until you find employment, your credit could continue to worsen.

Also, while research shows that people with high credit scores are likely to be good employees, it doesn’t show that people with low credit scores are more likely to steal or engage in other negative activities.

Since the credit reporting and scoring process was created to predict whether an individual would make on-time loan payments, credit reports weren’t created to gauge employability. Still, many employers look at  your credit reports as part of the hiring process, especially for employees who will deal with money regularly.

How to Boost Your Chances of Employment

The bottom line is, your credit report can affect your chances of being hired. Here are a few tips to boost your chances of getting a job, especially if you have a poor credit history:

  • Work to improve your credit by making all your payments on time and by paying down revolving debts like credit card debt.
  • Think of your credit as part of your overall reputation and work to protect your credit history as much as possible.
  • Be aware of what’s in your credit history and have mistakes fixed as quickly as possible.
  • If you have negative reports in your credit file, especially if there are items that were out of your control like medical debts, talk to the hiring manager. Hiring professionals understand that there’s more to you than your credit report, and being proactive can help your chances of getting hired.
Published or Updated: April 3, 2014
About Abby Hayes

Abby is a freelance copywriter and blogger who writes on everything from personal finance to health and wellness. She spends her spare time bargain hunting and meal planning for her family of three.

Comments

  1. Great blog, Abby.

    Here is an additional resource for your readers.

    It provides a synopsis of enacted and proposed legislation in every state that may be considering a limit on the use of credit reports for hiring decisions.

    http://www.ncsl.org/issues-research/banking/use-of-credit-info-in-employ-2013-legis.aspx

  2. Valentine says:

    I didn’t even know that my credit report can influence my work. I know that it is not an easy thing to establish a credit with no credit history. Creating good credit history when applying for such cash lending companies as, for example, Cash Loans Online Fast, is easy but people have to pay attention for that thing that they have to pay the required amount of money in time. Now I know that if I do not pay money earlier or before the time-limit, it will cause the reason to hire me from my work. Why do they do that? If I have some loan debt that means that I have to work to get more money for repayment. Instead of this I can lose my job and get more debts than I had before.

  3. These are great tips for everyone seeking employment. It is also a good idea to monitor your credit history with the big 3 every 4 months or so and you can get your credit report free if you rotate your requests on this basis. Do not pay for any monitoring service as it is a complete waste of money.

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