Credit

Can bad credit ruin your job search?

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.

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.

 Because nearly 20% of Americans have a credit score lower than 649, it’s important to consider how such a score might cause someone to be screened out during the hiring process . 

Now, there are many myths associated with credit checks and their impact on 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.

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 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 CreditworthinessCredit Score
PoorLess than 580
Fair581 – 669
Good670 – 739
Very Good740 – 799
Exceptional800+

Based on this scale, a person with “bad 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 and other types of credit, lenders will usually adjust the interest rate and the terms and conditions according to the additional risk carried by these candidates.

An employer, on the other hand, may use similar criteria to evaluate the financial situation of a prospective employee, as these are universally accepted categories. Therefore, the best way to understand what a bad credit score is (from the perspective of a recruiter) is to understand what bad 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.

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.

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 pulls are known as “soft,” which means that they don’t affect your credit score.

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 reflects 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, employers could perceive that there’s a lack of responsibility on behalf of the candidate, and, in some extreme cases, the status of the accounts may show that the candidate has an explicit unwillingness to comply with their pending payments.

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. 

Jill Gonzalez, from WalletHub, a company that provides free credit score checks, shared her view on this matter by saying, “Any missed payments or bankruptcies could signal signs of being irresponsible elsewhere.”

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.

Mike Aitken, from the Society of Human Resource Management (SHRM), comments that the employer’s intention in this regard is to “see if the person can handle their personal finances.

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

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 maintain 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 in your state of residence could help you form a strategy that assures your employer that this situation will not affect your productivity or 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.

Bottom Line

Yes, bad credit 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 this situation, as your qualifications should end up being the most important element of your application.

References:

https://www.consumer.ftc.gov/articles/0151-disputing-errors-credit-reports
https://www.cnbc.com/2018/06/29/how-your-credit-report-can-keep-you-from-getting-a-job.html
https://www.thebankruptcysite.org/resources/bankruptcy/postbankruptcy-discrimination-what-is-and-isnt
https://www.myfico.com/credit-education/what-is-a-fico-score
https://www.myfico.com/credit-education/whats-in-your-credit-score
https://www.experian.com/blogs/ask-experian/do-employers-look-at-credit-reports/
https://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-credit-reporting-act
https://pubs.thepbsa.org/pub.cfm?id=9E5ED85F-C257-C289-9E8E-A7C7A8C58D00
https://www.fool.com/the-ascent/credit-cards/articles/heres-what-americans-fico-scores-look-like-how-do/