Your Bad Credit Could Cost You Your Dream Job

If you’ve had any credit trouble in the past, you probably know just how much it can weigh on you as you try to accomplish various life goals and potentially dig yourself out of the financial issues in which you may have found yourself embroiled. And even if you’ve made significant strides toward getting yourself back on track, you might still end up in something of a vicious cycle thanks to the policies some employers are now using.

A growing number of companies nationwide are now using a person’s credit standing as a way of determining whether they should be eligible for a job, even as they consider their overall qualifications. The thinking behind such a move by employers is that they believe they can use whether a person has been able to keep up with their payments and otherwise properly manage their accounts to then determine credit rating whether an applicant can handle the various tasks that he or she might face in the course of doing the job in question.

Where some stand on the topic

Obviously, this kind of practice has proven somewhat controversial. Some consumer advocates note that this process has really only cropped up in the past few years or so, in the wake of the recession, and therefore say that it can serve to create a tough situation. Many consumers suffered credit problems in the first place because of their employment situations, and millions lost at least some of their income as their employers cut back on hours or even went through rounds of layoffs. Consequently, many of the financial issues they faced may have been the result of simply not having as much money coming in as they once did.

Further, many experts point out that the ability to properly manage credit, even if the missteps made were entirely an applicant’s fault, may not necessarily be indicative of a person’s professional abilities . While companies might be justified in running these checks if a person is applying for a finance-related position, this may not be the case for other jobs. Because of these reasons, a number of states across the country have gone so far as to outlaw the practice of employers ordering copies of the credit reports for applicants as they get deeper into the process, unless the job directly calls for financial management skills.

What this means for you

If you’re a person who has experienced some credit difficulty in the past and live in a state where the government has not moved to curb this practice, you may consequently be asked to submit to a credit check as part of your job search. For that reason, you might want to take at least some routine credit repair steps before you really go hunting for a new position.

Fortunately, the two easiest ways to go about this are also the two that will have the biggest impact on your credit scores overall. These two factors are known as payment history and credit utilization ratio. The first is relatively straightforward: your ability to pay all your bills on time and in full every month counts for 35 percent of your score, the largest single portion of your ratings. If you’ve missed deadlines in the past, your score could have fallen by as much as 100 points, and sometimes more. The only way to make up for the problems is to make at least several months’ worth of on-time payments once again.

Meanwhile, credit utilization ratio — which makes up an other 30 percent of your scores — is just an industry term for the percentage of your total combined credit limits that you’re using at any given time. For instance, if you have four credit cards with limits of $10,000 altogether, and owe those lenders a total of $5,000, your utilization ratio comes to 50 percent. Of course, that’s more than lenders would like to see you borrowing at any one time. The most you can owe before your credit score starts to slip is 30 percent of your limits. Therefore, to max out this portion of your score, you will need to make larger payments to more heavily cut into the balances you’ve accrued, for whatever reason, and prove you can more ably manage your accounts going forward.

Finally, when you’re trying to get your credit standing back up to snuff, you might also want to order copies of your credit reports from each of the three major bureaus. Doing so will not only help you better realize where you stand, but it will also allow you to spot any potentially unfair markings that may be dragging down your ratings without cause. If you spot any such issues, you might want to contact a credit repair company, as this may help you to sort them out quickly.

Posted in Credit 101
Learn how it works

Questions about credit repair?

Chat with an expert: 1-800-255-0263

Facebook Twitter LinkedIn