You might be surprised to learn that your current or future employer has the ability to check your credit report. A recent study suggests that as many as 10% of unemployed people have been turned away from job opportunities due to their credit history (Source).
Legislation To Curb Employer Snooping
Over the years, there have been legal efforts to prevent businesses from rejecting candidates just because of their credit history. For example, in New York City a law was passed that made it so most employers can’t look or use your credit history when considering you for employment (Source).
What Leads To Less-Than-Stellar Credit?
For some, credit struggles can be tied to losing a job and losing health insurance—making it tough to keep up with bills. For others, the root cause could be how they’re handling their cards and managing their spending.
Critics of credit checks say they create hurdles for people desperately looking for work. They also say there’s no connection between your credit history and how well you’ll do on the job. There’s also concern that credit checks unfairly impact certain groups, like minorities, women, students, and seniors.
The Impact Of Credit Report Errors
One alarming fact is that credit reports are not always accurate. A study by the Federal Trade Commission revealed that 20% of credit reports contain errors, with 2.2% being severe enough to impact financial decisions (Source).
Debunking Credit Check Myths
There are several misconceptions surrounding employer credit checks. For instance, not all employers pull credit reports for every applicant. Usually, this is done for specific roles, such as those in finance or executive positions. Additionally, employers and lenders interpret credit reports differently. While lenders heavily rely on them, employers consider a broader range of factors like skills and job history.
Your Credit Report Isn’t A Death Sentence
Even if you don’t have ideal credit, that doesn’t mean job opportunities are out of reach. Not all employers are experts at reading credit reports, and they also understand that even successful individuals can face financial difficulties.
Addressing Negative Credit Information
If you’re aware of negative items on your credit report, it’s okay to be open about that with potential employers. Transparency is key, as employers are likely to find out anyway. Being upfront about your financial history can show your honesty and willingness to take responsibility for past mistakes. This can often work in your favor, turning a potential negative into a positive during the interview process.
Be Proactive: Check Your Credit Report
It’s crucial to regularly review your credit reports, especially when job hunting or applying for loans. You’re entitled to one free report annually from each of the three major credit bureaus—Experian, Equifax, and TransUnion. Due to the COVID-19 pandemic, you can now get a free credit report each week through December 2023 (Source). Make it a habit to check for any discrepancies or errors that could adversely affect your job prospects.
What To Look Out For
Be vigilant for red flags like accounts sent to collection, tax liens, judgments, and bankruptcies. If you find any of these items, prepare to discuss them openly and honestly with potential employers.
Correcting Errors On Your Credit Report
If you discover an error, act promptly. Write a dispute letter to the relevant credit bureau and provide supporting documentation. They are legally obligated to investigate and remove unverified items from your report. This could also help boost your employment opportunities, as a corrected report can make you a more attractive candidate.
