Lenders of various types of loans typically utilize credit scores to assess a potential borrower’s creditworthiness. These credit scores evaluate how the borrower has dealt with past financial commitments.
However, how does someone’s credit score impact their access to suitable job opportunities? After all, 96% of employers in the United States conduct some type of background check on their prospective employees, including credit checks.1
A report commissioned by the National Association of Professional Background Screeners found that 47% of the companies surveyed ran a credit or financial background check on at least a portion of potential job candidates.2
Now, there are many myths associated with a credit check and its impact on credit history, credit report, credit score, and especially securing a job. And for this reason, this article aims to dig deeper into the matter to answer whether bad credit is detrimental to your job search while touching on credit scores and credit histories.
Understanding What “Bad Credit” Is
First, let’s define what bad credit actually is.
An individual’s credit score commonly assesses their overall credit situation. Typically, when lenders employ a credit score to determine the creditworthiness of an individual, they use the most popular credit scoring model, FICO®.
The FICO Score
The FICO score model was introduced by the Fair Isaac Corporation, and it assigns aspects of a person’s credit history with five different elements and their weights, as follows:
- Payment history – 35%
- Amounts owed – 30%
- Length of credit history – 15%
- Credit mix – 10%
- New credit – 10%
Each of these aspects is assessed through many different data points gathered from a person’s credit accounts, and this information is commonly processed by credit bureaus, which are institutions authorized by the U.S. government to gather, organize, and report this data to assist the financial system.
Scores through the FICO® model can range from 300 to 850, and a person’s credit situation can be classified as follows:
| Potential Creditworthiness | Credit Score Range |
| Poor | Less than 580 |
| Fair | 581 – 669 |
| Good | 670 – 739 |
| Very Good | 740 – 799 |
| Exceptional | 800 and above |
Based on this scale, a person with “poor credit” is usually seen as someone with a score lower than 669. These candidates are often referred to as “subprime,” and while they can still be eligible for loans such as cash advance loans, payday loans, and other types of bad credit loans. Lenders will usually adjust the interest rate and the terms and conditions according to the additional risk carried by these candidates.
How Employers Look At Credit
An employer, on the other hand, may use similar criteria to evaluate the financial situation of a prospective employee. Therefore, the best way to understand what a bad credit score is (from the perspective of a recruiter) is to understand what bad or poor credit is from the perspective of the FICO® scoring model.
Is it Legal to Run a Credit Check on a Prospective Employee?
The Fair Credit Reporting Act (FCRA) regulates how much employers and other parties can access your credit information to evaluate you for a job position. The plain answer would be “yes,” but they can only see a limited amount of information.
The first thing you should know is that employers cannot see your actual credit score unless you allow it. However, late payments and other negative account statuses will be disclosed. So it’s important to know how to explain bad credit to a potential employer.
Additionally, you must provide your consent before an employer can request your credit information from a credit bureau. In this sense, you should carefully read the material provided to you during the application and recruitment process before you agree.
They must also disclose if your credit situation will be a relevant factor in your eligibility for the job, and they must notify you in writing if they have found items that have raised concerns regarding your credit situation to allow you to dispute or explain if the information is accurate.
Products for Employers To Check Your Credit Score and Credit Report
Credit bureaus such as Experian have designed products specifically for employers who are looking to conduct a credit check on prospective employees. These products comply with the FCRA and are intended to disclose information that is already part of public records, along with key payment history data. These credit report pulls are known as “soft,” which means that they don’t affect your credit score.
Bankruptcy
Keep in mind that the U.S. Bankruptcy Code explicitly prohibits an employer from refusing to hire a person because he or she is currently undergoing or has been involved in a bankruptcy proceeding.
Why is Your Credit Situation Important to a Prospective Employer?
A company’s recruiting and hiring process tends to follow a unique approach that is intimately related to its core values, goals, mission, and vision.
Depending on the nature of the business, recruiters may be looking for certain characteristics when they evaluate potential candidates, and therefore, there’s no way to know for sure why an employer may feel inclined to look into a person’s financial or credit situation as part of its hiring process.
Nevertheless, these are some of the reasons that may prompt them to do so, even though they may not apply to all employers:
A Snapshot of How Responsible a Candidate Is
A person’s credit history and credit report reflect how well they have managed their financial commitments, and a significant number of late payments and other negative items may indicate that the candidate has difficulties with their responsibilities and duties.
If this is recurring and leads to a poor credit score, employers could perceive that there’s a lack of responsibility.
It goes without saying that those attitudes could also apply to the workplace, and they could warn an employer against considering a person for a job position.
A Way to Avoid Surprises Down the Line
Failing to pay for financial commitments on time could be an indication that the person is going through a difficult financial situation, and, therefore, employers will feel much more motivated to look into the matter during the interviews to understand why this has happened.
If the candidate fails to disclose why the employer might feel discouraged to consider them for a job position based on the fact that this potentially deteriorated financial situation could lead to constant requests for payroll advances or loans that the company may not be willing to extend.
A Measure of Risk
If the candidate has poor credit due to their financial situation, they may be more inclined to engage in fraudulent activities that could provide short-term funds to cope with his reality.
In this sense, credit and financial checks may aim to screen out prospective employees that are in urgent need of money, especially if they will be fulfilling job positions that are directly connected to money and resources within the organization.
How Can You Increase Your Odds of Getting Hired if You Have Bad Credit?
Since a person’s credit situation appears to be a relevant factor when they’re considered for certain job positions, the following tips may help you increase the chances of moving forward in the recruitment process regardless of your bad credit.
Take the Lead With Credit Histories
Failing to disclose that you are going through a challenging financial situation or that your credit is in bad shape, with the expectation that your employer won’t find out, is not really a good strategy.
As we have previously discussed, your credit information can be accessed to a limited extent, and it would be better if they had your context and explanations.
By taking the lead, you communicate that you understand how your credit situation could affect your eligibility, and it also conveys your capacity to talk about difficult matters honestly.
Additionally, you should consider outlining your plan to get ahead and come out of the situation.
Your openness could be a decisive element that could turn things in your favor if your employer values your honesty.
Understand that Some Job Positions May Be Temporarily Off-Limits
Bad credit indicates that you have failed to handle your finances properly in the past, and this is a worrying signal for employers if you are applying for a job in a department or a position that involves handling financial resources.
This also applies to positions that involve advising people about their finances or, if you will, maintaining relationships with key suppliers or vendors.
Research the Applicable Law in Your State of Residence
The laws that regulate financial and credit checks vary from one state to another, and if you have bad credit, you should be well-informed about these laws and their stipulations. In some states, these checks are completely banned, while in others, they may be permitted to a greater extent.
Understanding what you might have to discuss during a job interview could help you form a strategy that assures your employer that this situation will not affect your capacity to perform adequately in the workplace.
Work on Your Credit Before Applying
If your credit situation is significantly negative, you should consider taking some time to work on it before you start your job search, especially if your profession involves handling money and resources.
Go through your credit report to see if there are any inaccuracies or accounts that are showing incorrect statuses. You can file a dispute with the credit bureaus to get them to change this information, and they are obligated by law to review and respond to all of your letters.
Getting your credit back on track could increase your chances of being considered for a job position.
Your Qualifications are More Important than Your Credit Situation
While credit scores could potentially screen you out of a job, they are not the reason why you will be chosen for one. Your qualifications are much more important than your credit situation, and this is exactly what you need to communicate to your employers during an interview.
If you must disclose why your credit looks like it does, go ahead, but make sure that your skills, experience, academic background, and qualifications stand out above any of these financial details, as they will be the reason why they should be considering you as a candidate in the first place.
FAQS
It’s recommended that individuals periodically review their credit reports for any discrepancies or inaccuracies. By law, everyone is entitled to a free credit report annually from each of the three major credit bureaus. It will be helpful to take advantage of getting a free credit report. Monitoring these reports can ensure your credit health remains in good standing and there aren’t any unexpected surprises, especially if you anticipate an employer credit check in the future.
No, employer credit checks on your credit report and credit history can vary. Some employers may only look for major red flags, while others might delve into a more detailed analysis of your credit history. The depth and nature of these checks largely depend on the job’s nature and the employer’s policies.
A modified credit report is not typically an accepted practice. It’s important to provide the most accurate and up-to-date information to prospective employers. If you have a derogatory credit history, it’s better to be transparent and prepared to explain any financial hardships or discrepancies during the interview process.
While both employer credit checks and consumer report checks can provide insight into an individual’s financial responsibility, a consumer report is more comprehensive. It may include details such as rental history, criminal records, and other personal information, while an employer credit check mainly focuses on credit health and financial reliability.
Improving a bad credit score takes time. Start by paying down high balances, always pay bills on time, and avoid opening multiple new credit accounts in a short span.
Not all jobs or industries require credit checks. However, positions in finance, management, or those that handle sensitive information or large sums of money might be more likely to conduct credit or financial checks. Always inquire about the hiring process and what it entails to be prepared.
No, employers cannot perform a credit check on your credit score or credit history without your explicit consent. The Fair Credit Reporting Act (FCRA) mandates that employers must obtain written permission from a potential employee before accessing their credit report. If an employer decides not to hire, promote, or retain you based on the information in the credit report, they must inform you and provide a copy of the credit report they used, allowing you an opportunity to dispute any inaccuracies.
CreditNinja’s Thoughts On Your Job Search With Rough Credit History
Yes, bad credit scores or credit history from the three major credit bureaus can affect your job search to a certain extent, as employers occasionally run credit checks, and they can use them to help decide if you are a suitable candidate for a certain job position.
Nevertheless, you can take certain measures to ensure you are still considered regardless of how low your credit score is or how rough your credit history situation is. Or even what is on your credit report. This is because your qualifications should end up being the most important element of your application. At CreditNinja, we believe in providing people with all the tools they need for financial success. If you want to help your credit, check out our numerous blogs!
References:
- Do Employers Look at Credit Reports? | Experian
- Your credit report can keep you from getting a job | CNBC
- Disputing Errors on Your Credit Reports | Consumer Advice
- Post Bankruptcy Discrimination: What Is and Isn’t Allowed | Bankruptcy Site.Org
- What is a FICO Score and why is it important? | myFICO
- Fair Credit Reporting Act | Federal Trade Commission
- Use and Effectiveness of Background Screening Methods | PBSA.Org
