The job market, although showing signs of improvement, remains highly competitive. The Labor Department’s monthly report on jobs is nothing to brag but at least the unemployment rate held at 7.8 percent and has been at
or near that level since September 2012.
But job applicants may have to worry more about what’s on their credit reports than how their resume and job experience stack up. Bad credit can affect employment opportunities more than an applicant’s resume. Being late with credit obligations can cost you a job.
More employers are using credit reports as part of their applicant screening process. A great resume, good references and an interview are no longer the only determinants for many employers.
Even though there is no proof good credit employees worker harder or smarter than bad credit employees, employers insist on using bad credit reports to weed out applicants. If you are competing with an applicant with good credit and your credit is bad, the likelihood you will get as far in the hiring process as the good credit applicant is slim to none.
Once upon a time employers pulled applicant credit reports only when the career field involved handling money such as a bank teller, accountant, cashier or the job involved access to people’s home or property such as a police officer, firefighter or paramedic.
Now employers routinely use credit reports to “vet” applicants for just about any job. It has been stated by employers that credit reports help evaluate an applicant’s stability, revealing the amount of debt an applicant carries and whether an applicant moves frequently or maintains a stable residence.
Since 2007 many legislators have been working to get rid of credit checks as part of the employment process. The bad economy has prompted legislators in 18 states and the District of Columbia to introduce legislation aimed at limiting credit information in hiring decisions.
Hawaii, Washington, Oregon and Illinois have been successful in enacting actual legislation limiting employers’ use of credit information in hiring decisions.
5 Credit Report Red Flags
Ken Lin, CEO of Credit Karma, share information on the items in a person's credit report may appear as red flags to employers:
1. Liens. Any type of lien against you could be a sign of irresponsibility. It suggests to employers that you weren't responsible enough to pay off your debt or negotiate a settlement.
2. 100% Credit Utilization. This shows employers that you're in over your head and can't stick to a budget.
3. Bankruptcy/Foreclosure. Again this shows a lack of responsibility with things you're committed to. To an employer this could suggest that you'll bail on large projects and aren't resourceful enough. It also may suggest that you don't have long term visibility.
4. Recent Late Fees. Recent 30, 60, or 90 day late fees show finances are causing you significant stress. This activity may appear as more of a red flag for financial positions because it suggests you have trouble budgeting.
5. Significant Activity. A recent opening of several new accounts or closing of several accounts could appear as a red flag. Significant new activity may trigger employees to think you are desperate and need extra credit because you are in over your head. Closing several accounts could appear as a sign that you aren't good with money and don't know how to avoid charging up a large sum of debt.
If you are denied a job opportunity based upon information in your credit report, the employer must issue a “pre-adverse action disclosure.” The disclosure should include a copy of the credit report used in making the decision. The employer must give you the contact information for the credit bureaus which provided the credit report.