When you apply for jobs, you probably have a pretty good idea what employers are looking at when deciding whether to hire you: your education, employment history and qualifications. But there’s something you might not expect employers to care about — your credit.
Sure, it would make sense for a bank or credit card company to check your credit before giving you a loan or issuing you a new card. But why do employers check credit — and do you need to find a way to raise your credit score overnight? What could your credit possibly have to do with your ability to perform your job duties? A lot, it turns out.
Here’s what employers want to find out when they check your credit report and what you can do to prepare for a credit check.
Employers Check Credit History, Not Credit Score
There are plenty of reasons employers might check a job candidate’s credit history, and about half of the organizations surveyed by the Society for Human Resource Management in 2012 reported that they conduct credit checks. Only 13 percent conduct checks for all candidates, though 34 percent conduct credit checks on select candidates.
Before diving into all the reasons why employers might check your credit, though, it’s important to understand what they’re really checking. Employers look at job candidates’ credit reports — not their credit scores.
How You Handle Your Finances Is What Really Matters
“Despite the constant myth about scores and employment, there’s never been a verified example of an employer having access to or using a credit score to make an employment decision,” said credit expert John Ulzheimer. “That myth persists because people tend to use the terms ‘credit report’ and ‘credit score’ interchangeably as if they were the same things. [People make] the assumption that all credit reports come with scores.”
A credit report shows the credit accounts you have, how long you’ve had them and your payment history. Your credit score is a three-digit number based on the information in your credit report. “By and large, it’s not relevant to a hiring decision,” said Edward Yost, an employee relations expert at SHRM. Your credit report, on the other hand, has details about how you handle credit and your finances that can provide insight for hiring managers.
Employers Want You to Know They're Looking Into You
Federal law requires employers to get job applicants’ permission to do a credit check, Yost said. So you’ll know if your company wants to look at your credit report. “There’s no surprise,” he said.
Plus, several states have restrictions or prohibitions on using credit history as part of the employment decision process, Yost said. Companies doing business in California, Colorado, Connecticut, the District of Columbia, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington face limits on credit checks.
Employers Want to Know If You Can Be Trusted With Money
One of the top reasons companies conduct credit checks is to prevent theft and embezzlement, according to the SHRM survey. If they’re hiring someone who will be involved with financial transactions, they want to know they can be trusted, Yost said.
Employers Want to Ensure You Won't be Tempted to Steal
When checking a job candidate’s credit report, employers are looking for high levels of debt, late payments or credit accounts in collection. Any of these issues could suggest that the job candidate might try to divert funds from the company to his own account to pay off debt. “If they’re in that sort of trouble, the temptations may be too great,” Yost said.
Or employers might simply assume that if job candidates can’t spend their own money wisely, they can’t be trusted to make smart decisions with the company’s money, he said. If you’re looking to land your dream job but you’ve had issues with credit, be aware that employers are more likely to conduct this sort of credit check when hiring for banking, accounting and financial positions.
Employers Want to Know If You Can Be Trusted With Sensitive Information
Employers also conduct credit checks on applicants for positions with access to sensitive corporate data or customers’ or employees’ personal information. “Identity theft is certainly a reason an employer would be interested in those things,” Yost said.
A credit report might show red flags — excessive debt, delinquent accounts — that would indicate a job candidate shouldn’t have access to secure data. Companies don’t want an employee who would might steal private information and use it for personal gain. “Temptation, responsibility … That’s why employers still look at credit reports,” Ulzheimer said.
Employers Want to Avoid Legal Problems
A small percentage of employers surveyed by SHRM — 7 percent — said they conducted credit background checks to comply with state law. The checks are necessary for certain positions, like medical practitioners and day care workers.
A greater percentage of employers — 22 percent — reported that they conducted credit checks to reduce legal liability for negligent hiring. “Employees generally have a right to expect a workplace where they will not be injured or harmed,” Yost said. “Conducting a background check before putting an employee in proximity to money, sensitive or classified information or other financial resources can avoid the claims that an employer should have known better and would have been able to avoid the circumstance if they had run the background check.”
Employers Want to Know If Financial Issues Will Distract You
Another reason employers might check your credit report is to see if you have financial issues that could affect your performance, Ulzheimer said. They could be looking for the following:
- Do you have defaulted credit that can lead to distractions at work?
- Will debt collectors call you at work? Will you call debt collectors from work?
- Is there a chance your employer will be dragged involuntarily into your credit mess by way of a wage garnishment?
An employer might be reluctant to hire someone whose financial problems could interfere with their work.
Employers Won’t Rule You Out Because of Bad Credit
Employers don’t make hiring decisions based solely on a credit background check, Yost said. So if there’s negative information on your report, that doesn’t mean you won’t get the job. “Not everything that is negative on your credit report is necessarily a negative to you,” he said. In fact, 80 percent of organizations surveyed by SHRM reported hiring a job candidate with negative information on a credit report.
Employers Want to Know That You Are Prepared for What Matters
However, if you’re looking for a job, particularly in the industries where credit checks are more common, like banking and accounting, you should check your credit report for negative information that could be a strike against you. GOFreeCredit offers affordable credit reports and credit monitoring.
Even if you’ve been responsible with credit, you might find mistakes on your report that are hurting your credit. You don’t want to be surprised by this information after you’ve applied for a job. Checking your report before a job search may give you time to report and dispute credit report errors with the credit bureaus and your creditors.
Employers May Allow You to Explain the Results of a Credit Check
If a credit check turns up something negative, you might be given the chance to address it. The SHRM survey found that 64 percent of organizations gave job candidates the opportunity to explain the results of their credit check.
This is why it’s important to know what’s on your credit report before applying for jobs, so you can come up with a plan to deal with any negative information. For example, if you have a lot of debt, you may be able to negotiate settlements with creditors, Ulzheimer said. “Settlements won’t result in the removal of the items from your credit reports, but the employer will likely take a more favorable view if the items have been disposed of,” he said.
Employers Want to Know That You're Improving Yourself
The key is to take steps to improve your credit by paying down debt, making payments on time and fixing any errors on your report. Then you can let a prospective employer know you’re doing something about the negatives they see. “If you proactively address this with the employer and they see you’re making progress … That screams positive,” Yost said.
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About the Author
Cameron Huddleston is an award-winning journalist with more than 18 years of experience writing about personal finance. Her work has appeared in Kiplinger’s Personal Finance, Business Insider, Chicago Tribune, Fortune, MSN, USA Today and many more print and online publications. She also is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances.
U.S. News & World Report named her one of the top personal finance experts to follow on Twitter, and AOL Daily Finance named her one of the top 20 personal finance influencers to follow on Twitter. She has appeared on CNBC, CNN, MSNBC and “Fox & Friends” and has been a guest on ABC News Radio, Wall Street Journal Radio, NPR, WTOP in Washington, D.C., KGO in San Francisco and other personal finance radio shows nationwide. She also has been interviewed and quoted as an expert in The New York Times, Chicago Tribune, Forbes, MarketWatch and more.
She has an MA in economic journalism from American University and BA in journalism and Russian studies from Washington & Lee University.