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In today's competitive job market, your resume and experience are not the only factors that potential employers consider during the hiring process. Your financial history, particularly your credit score and credit report, can also play a pivotal role in determining your job prospects. The impact of a poor credit history extends beyond securing loans or making major purchases, it can also be a barrier to employment.
Many job seekers are surprised to learn that their creditworthiness could be the deciding factor in whether they land their desired position. With a significant number of states permitting employers to conduct credit checks on potential hires, the odds of a less-than-stellar credit report affecting your job application are higher than you might think.
This blog post explores both financial health and employment opportunities, shedding light on the reality of credit checks in the hiring process and offering insights into navigating this often-overlooked hurdle in your job search.
If you'd like to skip the article and speak to a debt specialist, get a free consultation today!
What is a Credit Score and Credit Report?
Your credit score is a numerical value that represents your debt, amount of debt, history of debt, and your repayment history. Your credit report details all your financial activities for at least the past ten years. Credit history is the information included in the credit report. The single most important factor is whether you consistently make late payments. Timely payments drive your credit score up!
Financial institutions can use your credit score and credit report to determine whether or not you are a good risk to lend money to. The idea is that the better your credit score the lower the risk that you will not pay back your loan. Employers can also look at your credit score and credit report and use your personal finance history to determine whether you are a good employment risk.
Is an Employer Background Check the Same as an Employer Credit Check?
No. A background check looks at your personal history which can include your social security number, full name, date of birth, education, criminal history, and address. Background checks can be very basic or very detailed - it depends on what the employer needs to know and if you are applying for a security clearance.
To obtain this information and perform a background check, they legally need your permission. If you are going to drive a company vehicle, the employer may also request a copy of your driving record.
Can Employers Check an Applicant's Credit Report?
The answer depends on which state you live in. Only California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington ban credit history discrimination for job applicants in most cases. Even in these states, there are exceptions for financial institutions and similar occupations. Other states have their laws.
Not every prospective employer will want a credit history for all potential employees and a credit history might not be required for a non-salaried, entry-level position. Permission may be part of the job application.
Employment background checks do not include a complete history including marital status, age, or account numbers. They will only see a record of payment history (timely payments), debt amount, and available lines of credit.
Before checking your credit, a prospective employer is legally required under the Fair Credit Reporting Act, a federal law, to let you, as a prospective employee, know that they are checking your credit history and they must get written permission to do so.
Prospective employees can refuse the credit check but may be turned down for the job.
What Happens if You Are Denied Employment Due to Bad Credit?
If you are denied a job due to bad credit, federal laws require a prospective employer to send you a “pre-adverse action notice” and a copy of your credit history to let you know they are planning to reject your application due to your credit history.
The company must wait three to five days before finalizing your rejection. You can take this opportunity to speak with the employer to explain your bad credit history and what you are doing to improve it.
If the employer decides to proceed with the rejection, you should receive a “post-adverse action notice” that contains the name and contact information of the credit reporting agency and the right to request a full copy of your credit report within 60 days.
Why Do Employers Check Your Credit?
Employers believe that your credit score indicates your level of responsibility and trustworthiness. If you consistently make late payments, the employer may assume that you will not consistently meet deadlines or obligations.
A lot of debt could indicate your financial health is poor and you may be tempted to commit fraud or steal from the company. Finally, if you manage your finances badly, you may also mismanage company funds or sensitive information.
Can You Get a Security Clearance With Bad Credit?
Having bad credit can make it harder to get a security clearance. Depending on the state, jobs at a financial institution, government position, law enforcement, information technology, and those with trade secrets generally require a credit check.
If your job allows access to prescription drugs, pharmaceuticals, or other assets, you will probably be required to allow a credit report.
Does a Pre-Employment Credit Report Hurt My Credit Report?
Generally, only “hard pull” credit report requests will temporarily decrease your credit rating. “Soft pull” credit reports do not harm your credit score.
Since pre-employment credit reports are considered soft, your credit score should not be affected.
Can You Get a Job with Bad Credit?
The short answer is yes you can get a job with bad credit, but it depends on the type of job that you are applying for. Do you need a work-from-home side gig? Browse our Work From Home Online Side Jobs That Pay Good
How Low is Too Low for a Credit Score?
Credit scores range from the high end of 799 to a very bad 300. Most people's credit scores fall between 670 and 739 or in the Good range. Many employers who check credit scores prefer you to be in the good range unless you have an outstanding reason to have a lower one - such as excessive medical bills.
If yours falls below the good credit score range, take time to fix your credit history. Each of the three credit bureaus collects slightly different information, so you will have to look at all three credit reports.
How Much Debt is Too Much?
This depends on your income and all your debts. If you add together all your debt and divide it by all your income (debt to income ratio), it should be less than 0.30 or 30%.
Learn How to Fix Your Credit Health
If your financial history and credit scores are less than stellar, there are some steps you can take to improve your financial position as you conduct your job search.
- Get a free credit report from each credit bureau: Equifax,TransUnion, and Experian. You have legal rights to get a free copy once a year from the three major credit bureaus. Learn about Why Your Equifax Credit Score is Lower Than TransUnion
- Inspect your report for any errors or inaccuracies. Correct any in writing through certified mail.
- Pay bills in full on time, every time. This has a huge effect on your credit score!
- Pay down loans as much as possible.
- Avoid increasing debt by taking out another loan or credit card.
- Be upfront if your potential employer requires a credit history. During the hiring process, explain why you have a bad credit history and bad credit score and what you are doing to solve it.
The Federal Trade Commission allows you to dispute the accuracy and completeness of your credit report and requires the credit bureaus to make corrections.
What's Included in an Employment Credit Check
An employment credit check is different than a full credit report you might get as a consumer. Here's what employers typically see:
- A record of any late payments
- How much debt you currently have
- The amount of credit available to you across cards/loans
Importantly, employers won't see sensitive information like your full social security number, account number, or date of birth. They also won't see your exact credit score number.
Credit Score Cutoffs Used by Employers
While every employer is different, here are some general guidelines on what credit scores may cause concern:
- 700+ - Generally considered excellent credit. Unlikely to impact job prospects unless the role requires pristine credit.
- 650-699 - Still relatively good credit. May only be an issue for sensitive financial or government roles.
- 600-649 - Approaching risky territory depending on position. Should address credit issues.
- Below 600 - High risk range. Likely to severely hurt prospects across most industries.
State Laws on Employment Credit Checks
While most states allow pre-employment credit checks, 11 states have laws prohibiting or limiting their use:
- California
- Colorado
- Connecticut
- Delaware
- Hawaii
- Illinois
- Maryland
- Nevada
- Oregon
- Vermont
- Washington
Be aware of the laws in your state, as they impact what employers can see and what rights you have.
Building Credit When Job Hunting
Here are 5 proactive steps to take while looking for work to offset negative credit marks:
- Review all 3 credit reports and dispute inaccuracies
- Pay down balances below 30% credit utilization
- Set up automatic payments for ongoing bills
- Limit credit applications until employed
- Contact creditors to adjust payment plans (avoid further issues)
FAQs
Conclusion
A good credit history can open many good from loan rates to employment opportunities. If you plan to look for a job, check your credit history with the major credit bureaus. If you find errors, contact the credit bureau and work to clean them up.
If you have a poor credit history, start paying your bills on time, pay down any credit card account, and do not apply for more debt. It takes about a year to bring up your credit score but you can do it!
If you face an employer credit check, explain why your score is lower than you might like what you are doing to improve it, and any other relevant details. Most employers will appreciate your honesty during the hiring process.
If you have too much debt and can't make even monthly payments, you may need more help from a company that specializes in credit counseling or debt settlement. Pacific Debt, Inc. can help you find a solution to your debt and help you clean up your finances.
Pacific Debt, Inc.
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*Disclaimer: Pacific Debt Relief explicitly states that it is not a credit repair organization, and its program does not aim to improve individuals' credit scores. The information provided here is intended solely for educational purposes, aiding consumers in making informed decisions regarding credit and debt matters. The content does not constitute legal or financial advice. Pacific Debt Relief strongly advises individuals to seek the counsel of qualified professionals before undertaking any legal or financial actions.
