When you apply for a mortgage, the lender will check your credit. When you apply for an auto loan, they'll check your credit. When you apply for a job, your potential employer will also check your credit. Wait, what? Employers can check credit reports? Isn't that an invasion of privacy?
Why does a potential employer want to see your credit report?
It's not an invasion of privacy, in fact, it's perfectly legal, although many privacy and consumer advocates don't think it's fair to confuse professional qualifications with credit history. But employers take a different stance. They maintain that a credit report is simply one way to judge a persons character, which can be very important depending on the job.
For example, if the position requires involvement in finances, bookkeeping or money-handling, an applicant's credit history may reflect on their qualifications or suitability for the position. It's also easy to see where an individual's credit report may be checked for positions requiring high security clearance, handling of valuables or jewelry, or knowledge of trade secrets.
Is it legal for an employer to check credit reports?
If you know the screening process for the position may potentially include a credit report, be ready to explain any negative items
However, many employers check your credit for positions where a credit report may be of questionable value at best, it's not illegal for them to do so. Under federal law, a prospective employee must give permission for their credit reports to be checked, and this is usually specified in the fine print on an application. So, whenever you sign an employment application, read the fine print first.
What if I know that my credit is bad?
Knowing what's on your credit report, and how it may affect you, is the first step. In fact, you may even want to explore the option of repairing your credit prior to applying for a position. There are several ways that you can check your credit reports, so you'll know what a potential employer is likely to see. Under federal law, you are entitled to one free credit report each year. You can see reports from all three major credit bureaus at www.AnnualCreditReport.com
Once you know what's on your report, don't immediately despair, it may not be as bad as you think, and it may not even disqualify you from the position. When it comes to credit, specifically the amounts owed, the number of negative or delinquent accounts, and how it may affect your job prospects, remember that although some positions will have a black-and-white standard or cutoff point, for many positions these items may only be a 'red flag' that does not immediately disqualify you for the position. After all, typically when an employer is ready to do a background check and pull a credit report, they've already decided they want you.
How to explain bad credit
If you know the screening process for the position may potentially include a credit report, be ready to explain any negative items. It's important to have clear reasoning for each item. Unexpected loss of employment, divorce, medical emergencies and other similar circumstances are generally understood to have a negative impact on your report, and may be readily accepted by the potential employer as an explanation for negative marks. There may even be mistakes on your report that you're working to fix.
Wait, there may be mistakes on the credit report?
It's estimated that around 70% of all credit reports have some type of mistake or inaccuracy, so it stands to reason by the law of averages that your report is one of the ones that has mistakes. A potential employer won't know the difference between mistakes and errors and the information that's valid unless you tell them, so make sure they know that you are aware of the issues and are working to repair the negative items and mistakes on your credit reports.
Talking about your credit, especially if it's not that great, can be uncomfortable and embarrassing. It's important that as you explain the negative items on your report that you have a solid reason, and explain each item with confidence and clarity. In fact, it may be a good idea to rehearse the explanation several times beforehand. A clear explanation shows that you are not only aware of an issue, but have a solid grasp of the implications and are taking action to resolve it.
How to repair mistakes and inaccurate information
on your credit report
If you're going to tell a potential employer that you are working to fix mistakes and negative items on your credit report, it's probably a good idea to be telling the truth so make sure you really are working to repair your credit. There are several ways to do this once you know what's on your report. Under federal law, you have the right to dispute anything in your credit file that you feel is inaccurate, misleading or unverifiable. This can be as simple as writing a letter to the three major credit bureaus directly (some of them allow you to dispute items online or via email) explaining why you think the item is a mistake, identity theft, fraud, etc. The bureaus have 30-45 days to investigate the items you've disputed, and will notify you of their findings. Be aware, though, that just because you feel an item is a mistake doesn't mean the credit bureau will agree. They may request more information from you, or simply deny the dispute altogether.
Repairing your credit in preparation for a job prospect can be time consuming and frustrating. And generally, there's a time factor for the desired position as well, and credit repair doesn't happen overnight. If you're interested in having your credit reports in the best possible standing prior to an employment application or interview, it may be worthwhile to hire a credit repair firm to do it for you. These firms specialize in repairing your credit report and getting negative and erroneous items removed from your credit report, and have learned the strategies and methods for expediting the process, which can make a big difference when applying for a new position.
Don't be a hostage to your credit
Applying for a new job can be a frightening prospect filled with anxiety and hope. There's no reason to throw a credit report with negative items into the mix and compound all of the emotion that's already there. Make sure you know what's on your credit reports, that you can explain every item that's there, and that you're taking action to fix negative items and mistakes. By taking these steps, you'll be in a better position than 80% of the candidates who, according to a Visa survey, don't even know that their credit reports may be a factor for a position.