Does Bad Credit Affect Job Applications?

The commonly held view regarding a credit score and profile is that building a strong credit history can help an individual as he or she proceeds through adulthood and eventually requires larger-ticket loans such as a home mortgage or auto loan.

This, of course, is true. What is not considered as often is the potential impact that a weaker credit profile can have on an individual’s ability to successfully pursue employment. Indeed – potential employers can make character judgments based on a credit history, and a strong credit profile can imply trustworthiness and reliability.

However, is it possible that having a weaker credit history can actually impede an individual’s ability to get hired by a prospective employer? Let’s take a closer look.

Can a Potential Employer Run a Credit Check?

The quick answer is yes, and there are no Federal laws on the books that prohibit a potential employer from basing a hiring decision upon an applicant’s credit history.

A nationwide survey of over 1500 human resources professionals conducted by the National Association of Professional Background Screeners in conjunction with the website hr.com, revealed that 25% of HR professionals use credit or financial checks when hiring and that approximately one in sixteen HR professionals check the credit of all applicants.

However, there are some jobs for which a credit check is more likely than others. Credit checks are generally conducted more commonly for jobs that involve access to money, sensitive data or confidential information, and they can never be conducted without the permission of the applicant. Furthermore, eleven states – California, Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont, Delaware, Nevada, Colorado and Washington – place limits on how a potential employer can use an applicant’s credit history in making a hiring decision.

If you’re a resident of any of these states, or a resident of New York City, Philadelphia or Washington D.C. – research the law in these areas if a potential employer asks you to provide access to your credit background when applying for a job.

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Why Do Some Employers Run Credit Checks?

Employers need to guard against fraud and theft, therefore running a credit check on applicants for positions that involve managing money actually makes sense.

Employers are going to want to make certain that an applicant has demonstrated self-discipline with their own personal finances – therefore a credit profile that reflects late payments, maxed-out credit lines or even a bankruptcy will not reflect well in such a situation.

Other positions that frequently involve credit checks include those for law enforcement and government agencies, as well as for jobs that involve security clearance and place the employee in a position to access personal and confidential data.

Positions involving the sale of high-end merchandise such as jewelry often warrant a credit check as well – since a stronger credit profile implies financial stability that should leave the employer less vulnerable to theft.

What Does an Employer See When it Runs a Credit Check?

Surprisingly, an employer will not actually see your credit score – but only a modified version of your credit report that omits the credit score, all account numbers, your age and marital status.

Therefore, it is actually a myth that an applicant can be denied employment because of a low credit score. However, the employer will gain access to your payment history, amounts owed and remaining available credit on all accounts.

This means that your total level of indebtedness will be available to the employer as well as your track record of making (or not making) timely repayments on your debt. Importantly – remember – you must give written permission for an employer to access this information.

The Fair Credit Reporting Act

The Fair Credit Reporting Act mandates that an employer must inform an applicant that a credit check might be used as part of the hiring decision and that the employer must receive written permission from the applicant to conduct a credit check.

If an employer might reject an applicant based on information found in the credit check, the employer must send the applicant a pre-adverse action notice along with a copy of the modified credit report used, as well as a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act.”

The employer must then wait three to five days to allow the applicant to address any negative information included in the credit check or to dispute any inaccuracies with the reporting agency.

Additionally, if an employer runs a credit check on one applicant for a specific position, the employer must run credit checks on all applicants for that same position – otherwise the employer becomes vulnerable to a discrimination lawsuit

Monitor Your Credit Reports

You are entitled to one free credit report annually from each of the three major credit bureaus – Experian, Equifax, and TransUnion. Examine your credit reports for discrepancies and inaccuracies, and file a dispute with the appropriate bureau if necessary.

Meantime, keep all of your accounts in good standing – make timely monthly payments on an ongoing basis and manage your outstanding debt balances responsibly. This way, if you do find yourself in a situation in which an employer may wish to run a credit check, you can approach it with the assurance that you have prepared for this possibility.

About The Author: Steven Brachman

Steven Brachman is the lead content provider for UnitedSettlement.com. A graduate of the University of Michigan with a B.A. in Economics, Steven spent several years as a registered representative in the securities industry before moving on to equity research and trading. He is also an experienced test-prep professional and admissions consultant to aspiring graduate business school students. In his spare time, Steven enjoys writing, reading, travel, music and fantasy sports.