Good Question: Employers can derive a lot from credit reports
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Question: I'm currently searching for a new job. It's my understanding that most employers are checking credit reports before hiring. Why do they this, and how should I prepare?
Answer: A recent survey by the Society for Human Resource Management found that 60 percent of employers do a credit check for at least some positions. Finance industry positions typically check an applicant's credit report to prevent against possible theft or embezzlement. From the employer's perspective, a candidate with a lot of debt and what appears to be strained finances might not be suitable for a position with access to large amounts of money.
There are several key areas employers examine on a credit report.
The first is tax liens. If you have any liens on property because of back taxes due, that shows up on your credit report. For some employers, this may indicate irresponsibility. A potential employer might also think you're irresponsible if you have a foreclosure or bankruptcy on the report.
Employers also may examine your credit utilization. Maxed-out credit cards could be a sign of financial distress. Employers also look for recent late fees. This may be especially true in the finance industry. Recent late payments may indicate you're under financial stress and are having trouble budgeting.
If you are beginning a job search, it's important to check your credit report. Consumers are eligible for a free credit report from each of the three credit bureaus annually. Free credit reports can be obtained by going to www.annualcreditreport.com or calling toll-free 1-877-322-8228. This is the only site where your credit report is truly free. It's important to check your credit report prior to a job search because one in four credit reports contain an error. Information on how to dispute credit report errors can be found on the Federal Trade Commission website, www.ftc.gov.
If you find your credit report in less than stellar condition, it's a good idea to be up front with your potential employer about financial issues you have had. Explain why it appears you are in financial distress, and explain what you're doing to rectify your situation.
For instance, be up front if you've been dealing with medical issues, unemployment or if you've been the victim of predatory lending or identity theft. It's better to explain the situation and what you've learned from it than to let a poor credit report stand on its own.
Also, be aware that the employer must have your written authorization to check your credit report prior to doing so. You can refuse the credit check, but it's likely you will be ruled out as a candidate for the position. The credit check also will show up as a hard inquiry on your credit report, which may have a slight impact on your credit score.
If you are not hired for the position because of information on your credit report, under the Fair Credit Reporting Act, the employer is required to tell you so and provide the credit report information. In addition, all employers should provide the applicant with a copy of the credit report.
As with other financial issues, when job searching it's important to be proactive regarding your credit report. Find out what's on it before a potential employer does and try to mitigate issues before you're not hired for a position you know you're qualified to do.
First Published August 12, 2012 12:00 am