Say you've just been offered the job of your dreams! You're excited! The employer's excited! But just before your new employer can officially offer you the job, he or she asks you to fill out a background check form, and included in that form is the authorization for the employer to view your credit report.
While checking a potential employee's credit history is not as popular as it was once, the practice is not altogether uncommon. According to a 2012 report from the Society for Human Resource Management (SRHM), approximately 47% of employers conduct credit background checks on potential employees. They do this for a number of reasons: sometimes to check for criminal history, but mostly to see how well you manage your personal finances, which can say a lot about you.
Currently, 11 US states (California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington) restrict or prohibit employers from conducting credit-based background checks in most circumstances. The credit reports potential employers can access (with your written consent) do not contain any personal information such as your age, credit score, or financial account numbers; however, he or she can see the sources and types of credit that compose your profile.
Having a negative item on your credit report does not necessarily disqualify you from consideration for most jobs-in fact, nearly 80% of employers polled in the SHRM's survey reported hiring someone in spite of derogatory marks; however, depending on the industry, the quantity and quality of negative credit items on your credit report sends certain messages to an employer that your resume does not.
Among other things, a healthy credit report speaks to your integrity, not just as a potential employee but also as a person. Negative items on your report such as bankruptcies, judgments, and delinquent payments can suggest varying levels of irresponsibility, untrustworthiness, and overall high risk.
As mentioned before, not every employer requires a background check before considering you for a job; however, some industries rely on the integrity of their employees far more than others-especially when it comes to money or security.
One of the most lucrative positions in the mortgage industry is the mortgage loan originator; however, this position requires a license. And according to the Nationwide Mortgage Licensing System and Registry, your credit and debt history can play a major role in your licensure. If you have poor credit, you could be denied a license; if your credit has been damaged after the fact, your license could be revoked. Good credit is an important indicator of financial responsibility and character-and in light of the 2008 mortgage crisis, these have become crucial qualities in this profession.
If your goal is to become a CPA, auditor, or any profession in which you will have access to sensitive financial information, your own credit history must be above reproach. Simply put, good credit shows that you're actually good at handling money. It also implies integrity, a major requirement in the finance industry. Bankruptcies and late payments on your record, meanwhile, make you a risky hire in the eyes of most financial employers.
Any job that requires a government security clearance is going to require a thorough background check-and your credit history does play a role in your chances of getting hired. These jobs include all the branches of the military, the Transportation Service Administration (TSA), and other positions in both state and local government. According to the TSA's job application form, if you have more than $7,500 in delinquent debt, delinquent student loans, tax liens, judgments, or child support, you might as well not apply.
Speaking of security, law enforcement is another area where background checks, including credit-based background checks, play a significant role. Infrequent and occasional hits to your credit report do not usually warrant denial or termination from a law enforcement position, but a pattern of irresponsible behavior (particularly when it comes to debt) is a red flag. According to Richard Weinblatt, dean of the School of Public and Social Services at Ivy Tech Community College, law enforcement officials under incredible financial duress are more open to bribes and other forms of corruption.
Whether or not your future plans involve any of the industries above, your credit report is still an important part of your future success. It can affect your ability to get a loan, to buy a house, and so much more. So before you start sending out your resume, here are some steps you can take to ensure that your credit status is healthy.
According to a 2013 report from TransUnion (one of the three major credit bureaus), one-third of Americans have never checked their credit reports, with another 25% reporting they haven't checked their reports in at least a year. If you don't know your credit score or what shows up on your credit report, find out today! You can access a free credit report every 12 months through AnnualCreditReport.com.
Your credit report will tell you a few things:
Checking your credit report is also important in the event of identity theft. If someone else is using your identity, your bank accounts, or other personal information to start new accounts, you're credit report will reflect that.
To know how to build good credit, it's important to know what goes into your credit score. According to Mint.com, your credit score is determined by a number of factors:
What percentage of your credit limit are you actively using? Do you regularly max out your credit cards? In order to build good to excellent credit, you'll want to keep this number below 40 percent (ideally under 20 percent). A higher percentage indicates that you have little control over your spending habits.
Your payment history records the number of total payment you've made versus the number of those payments that are late. Minimizing late payments demonstrates your reliability (both to lenders and future employers). If you make 100 percent of your payments on time, you're in good shape; anything less than 97 percent and you're in trouble.
Average Age of Credit
While the age of your credit accounts has a medium impact on your score, it's still a pretty important indicator of your creditworthiness. An average credit age of nine years or more is ideal; if you are opening and closing several credit accounts in a short period of time, tells creditors and employers that you are a high risk borrower/employee.
Meaning, the number of accounts (both open and closed) under your name. Having 22 or more accounts over a long period of time (e.g. credit accounts, loans, or investments) is a good indicator of creditworthiness. BUT BE WARNED: opening several credit accounts at once can drive your score down.
A large number of "hard" credit inquiries (where you give a lender permission to pull your credit report) can drive your score down. Meanwhile, "soft" inquiries (where you provide the credit report yourself) do not affect your credit score at all.
As mentioned above, derogatory marks will negatively affect your credit score, your ability to secure loans, and potentially your livelihood. Derogatory marks, unless disputed, can stay on your credit report for seven years or more.
If after looking through you credit reports-one each from Equifax, TransUnion, and Experian-you discover inaccuracies or outdated information, you have the option to dispute these items, either on your own or through a professional credit repair company. While credit repair is no guarantee that you can raise your credit score by deleting inaccuracies from your report, it does provide an opportunity to clean up your credit history, and in some cases, land that job you've been looking for.
May 7th, 2021
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