Job hunting can be extremely nerve-wracking - and once you realize that some employers may be able to check your credit history as part of the application process, it can seriously up your stress levels.
In the future, this stressor may disappear. Senator Elizabeth Warren (D-Mass) and Representative Steve Cohen (D-Tenn) have introduced federal legislation that would prohibit credit checks by employers except in limited circumstances, such as when a credit check is required by local law or when you're applying for a position that requires a national security clearance.
In the meantime, you should know why a prospective employer might check your credit history. And if they do check it, what kind of details can they view?
Why do employers check applicants' credit history?
A 2012 study from the Society for Human Resource Management (SHRM) found that 47 percent of U.S. companies conduct credit background checks. Companies say they primarily do this to prevent or reduce theft - perhaps thinking that people who are behind on large debts might be more inclined to steal from the company - and to potentially reduce liability for negligent hiring.
Lynda Spiegel, an HR professional and founder of career coaching company Rising Star Resumes, says that employees with access to financial accounts will likely have their credit checked. This may include low-level cashier positions as well as corporate accounting jobs. Work that requires national security clearance or deals with confidential information often requires a check as well.
How might my credit affect my chances of getting the job?
So if you have a derogatory mark - or multiple derogatory marks - on your credit report, how might that reflect on you as an employee? Some employers may view negative marks as an indication of your lack of financial responsibility. They may see this as a warning sign that you won't be responsible when handling the company's, or clients', finances or sensitive information.
However, if an employer spots a derogatory mark on your report, it doesn't necessarily mean they won't hire you. The SHRM survey found that 80 percent of organizations reported hiring a candidate who had negative credit information in his or her report.
That being said, a good credit report never hurts. If you and another job candidate have the exact same qualifications, it could be the credential that makes you stand out from the crowd.
What can and can't employers see?
The credit report that employers may receive is different from the consumer credit report banks and other lenders can see when you apply for a new credit line. The employer version doesn't list your age or year of birth, as an employer shouldn't need to know this. The report also won't list your account numbers, but the sources and types of credit are shown.
Credit reports can be part of the background check process, along with a criminal record check and education, certification and license checks. There are third-party companies that will perform background checks on an employer's behalf, or the company might buy a report directly from a credit bureau. In some cases, the employer might ask you to request a free copy of your report and share it with them.
One myth that needs to be quashed is that employers can see your credit score. This is not true. The report the company receives does not have a credit score on it.
The inquiry into your credit file shouldn't impact your credit score, and in some cases it won't be visible to anyone but you and the credit bureau. By law, the employer must get your written permission before checking your credit history.
The practice may end soon.
According to the latest data from the National Conference of State Legislature, if you live in one of the following 11 states - California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont or Washington - there are laws that restrict or prohibit employers from using credit reports when hiring in most circumstances. National legislation, mentioned above, may make similar restrictions the law of the land.
Some cities have also started outlawing this practice. In May 2015, New York City's mayor Bill de Blasio signed bill Intro. 261-A into law. It prohibits employers, labor organizations and employment agencies from requesting or using applicants' credit history in most circumstances. De Blasio says that he signed the law to ensure that when people are applying for a job, they're "judged on their merits and ability, rather than unrelated factors."
What should you do when applying for jobs?
When applying for a job, it's unlikely that your credit report will be the first thing the company considers in order to see if you're qualified for the position. First, employers will want to screen out all the candidates that aren't fit for the job. It costs money to order a credit report or background check and there's no reason to pay when the applicant is otherwise unqualified.
The SHRM survey found that only two percent of companies check applicants' credit before an interview and 58 percent wait until a contingent offer is extended. If they check your credit, it might be a sign you're doing well in the interview process.
However, it could be smart to take the initiative to see what's in your report before applying for a job. You can do this by requesting a copy from AnnualCreditReport.com. It's free, and you are allowed to request a copy from each of the three credit bureaus once per year. You can also sign up for a Credit Karma account to get free access to your TransUnion and Equifax credit reports.
Rasheen Carbin, founder of staffing services MBA Project Search and nspHire, says that it's important to know what's on your credit report because you don't want to be caught off guard and unable to explain negative marks. He says that employers may give you an opportunity to remedy the situation rather than pass on you.
Another reason to check? In 2012 the Federal Trade Commission found that 26 percent of people they surveyed reported at least one error in their credit report that might affect their credit scores. If you find an error, there are steps you can take to dispute it. However, the process can take weeks or longer, so you may want to review your reports and begin the dispute process as early as you can to increase the likelihood that your credit report accurately reflects you when you apply for the job.
Many employers when allowed by law check job applicants' credit reports when the position involves handling money or sensitive information. You should request a copy of your credit report before applying to jobs, make sure there aren't any errors and be able to explain negative marks to interviewers.
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