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How Bad Credit Can Affect Job Prospects

Don't let a poor credit history cost you a new job. Instead, understand how bad credit can impact your employment opportunities, and learn when and how to address your situation with a potential employer to improve your chances of getting hired.

Workers are passed over every year for jobs they are otherwise qualified for due, in part, to their poor credit history. Yes, it's true; your negative credit history can impact an otherwise positive job prospect.

If you're surprised that companies can access your credit history, don't be. The Fair Credit Reporting Act (FCRA) clearly authorizes employers to obtain information from consumer reporting agencies like Equifax or Experian when you provide your written permission. For example, buried within a job application may be a form requesting your authorization for a potential employer, or a third-party they employ, to pull your credit report. Information contained therein gives the hiring company another means of evaluating you for employment.

Why pull a credit report?
Employers conduct various types of background checks to gather information about a potential employee that could swing their hiring decision. Obtaining a report on an individual's credit history is just one type of information employers seek. Criminal histories and driving records are others.

What are employers looking for?
Companies are looking to see how well a job prospect has handled their personal finances. More specifically, they're looking for any outstanding judgments (e.g., a lawsuit filed in court), accounts in debt collection, bankruptcies, a high debt-to-income ratio, foreclosures and tax liens. These were the top items, in order of importance, listed by human resources professionals who participated in a late 2009 survey conducted by the Society for Human Resource Management (SHRM).

What's the link between bad credit and job performance?
Potential employers may view bad credit as a sign of a person's irresponsibility. Therefore, if you've done all the right things to get the job, such as networking with the right people, earning an interview, and showing you're qualified for the job, you could still lose it in the end if an employer asks to perform a credit check and your history is spotty at best.

SHRM survey participants perform credit checks as a way to mitigate any damage a person could cause if employed. More specifically, hiring professionals are looking to reduce/prevent theft and embezzlement or other criminal activity, reduce legal liability for negligent hiring, assess the overall trustworthiness of a job candidate and comply with applicable state law requiring a background check for a particular position.

How likely are employers to conduct credit background checks?
According to the SHRM survey, 13% of companies perform checks on all candidates and 47% do so for selected job titles. Of those that perform selected searches, employers seek six to seven years of credit history.

Basically, if the job requires access to finances (e.g., as a cashier, payroll or money manager), or if the employee will have contact with merchandise or confidential information, expect a request from the business to seek your credit report as part of their hiring process.

Can you ever be hired if you have bad credit?
The simple answer is "yes." Even if your credit history is tarred with something unsavory, there is still hope for getting hired in a new position. In the SHRM survey, 65% of respondents said they allow job candidates, under certain circumstances, the opportunity to explain the results of their report before a hiring decision is made; 22% even allow this opportunity after the hiring decision is made.

It's because of this potential opportunity that it is critical to know how to best address your poor credit history and improve your chances at hearing the magical words, "You're hired!"

Tory Johnson, CEO of Women for Hire and the workplace contributor on ABC's "Good Morning America," provides several tips for explaining a poor credit history, some of which include:

  • Know what's in your report. Be a responsible consumer and request free copies of your annual credit report. If you spot errors, be sure to take the proper action to correct them. (Links provided below tell you how.)
  • Speak up at the right time. Don't let an employer be surprised by something in your credit report. Once the business makes it clear that you're going to receive a job offer, start explaining your credit history only at that time. Mentioning anything before an offer is extended could take you out of the running for the position earlier in the process. You want to have enough time to show a potential employer how qualified you are for a particular position first. You'll have an opportunity later to explain that your poor credit was caused by an unexpected layoff, a medical emergency, divorce, etc.
  • Practice your explanation. You want to come off with confidence and maturity. Practice your explanation in front of a mirror and then test it out on a friend or family member.
  • Get a copy of the report.The FCRA requires potential employers to share with you any credit report they pull. So if you find yourself in this position, request a copy of your report to ensure everything contained in it is correct. You don't want a potential employer making any rash decisions based on faulty information.

Economic conditions and unemployment rates are scary enough these days, so don't put an extra damper on your job opportunities by failing to address your negative credit history. Let your qualifications and prior experience speak for themselves to earn you the job of your dreams. Then, and only then, carefully and openly detail the reasons behind your credit past and ensure a potential employer that you're well on your way to bringing your finances under control. After all, you don't want bad credit to cost you your next job.

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