In today’s tough employment market, employers are turning to credit reports as a tool to sort through pools of applicants more than ever before. According to the Society for Human Resources Management, 60 percent of employers are using credit reports when filling job openings, up from 35 percent in 2003. This means you, the applicant, need to be more informed about your credit report and what it says to potential employers.
While the credit reports potential employers use cannot reveal your FICO or Empirica number (that's the number you so frequently hear referred to as your credit score), it can tell an employer several things about your personal habits, financial stability and general character. An employment credit report typically displays the following items:
- Past Employers: (usually your last one or two long term employers)
- Collections: (accounts such as credit cards that had balances sold to collection agencies)
- Bankruptcies, Tax Liens, and Foreclosures:
- Credit Availability: (amount of usable credit remaining)
- Revolving Accounts: (accounts such as credit cards with varying balances)
- Installment Accounts: (accounts with set amounts to pay down such as car loans or student loans)
- Mortgage Accounts: (home mortgages, second mortgages and home equity loans)
- Past Inquiries: (list of companies that pulled your credit history or credit score in recent months)
Note on Past Inquiries: Some companies can query limited information such as your credit score alone without your permission, usually for pre-approval offers. So don't be alarmed if you see unfamiliar companies displaying as recent inquiries.
Credit availability reveals how much of your total revolving credit you are using at the time of the inquiry. As a general rule of thumb, the lower this percentage is, the better it looks to your employer. Employers can also see if payments on any of your accounts have been up to and over 120 days late and if they have been sent to collections. Your report will display a detailed payment history for each account which will indicate your overall tendency to pay debts on time or if you are habitually late. Your employment credit report will indicate how long you've had each account open as well. Employers often view several new credit card accounts carrying sizable balances in the past year or so as a red flag.
One thing to keep in mind is that (contrary to popular belief) an employment credit report will not affect your actual credit score. These inquires are considered “soft inquiries” and will not count negatively against you. Therefore, rest assured that if you are applying for several jobs that run credit histories, this will not have an adverse affect on your score.
The best thing you can do to protect yourself is to keep informed. Head over to http://www.annualcreditreport.com/ (the original website set up to give consumers direct access to their credit history) to view your report for free from all three bureaus in order to ensure all information provided is accurate and up to date. If you do find mistakes, it is the credit bureau’s responsibility by law to investigate these errors and update your report accordingly.
If you have been out of work for several months and your credit report has taken a hit, always be up front and honest with the potential employer. It is better for them to know what they are going to see before they view your history, than to be surprised by it. The employer may also take into account more of the full history of your report as opposed to the recent blemishes.
You may ask: what are the most common factors that cause employers to raise an eyebrow at your credit report? Some people automatically think of things such as bankruptcies and home foreclosures, but this is not always the case. In fact, employers must be cautious as to what criteria they use to eliminate a potential applicant from a job position based on a poor credit report. While employment credit checks are legal, they can be considered discriminatory if they disproportionately exclude minorities, women or people over 40 or are not essential to a hiring decision.
That being said, an employer may assess your personal characteristics by your tendency to pay your bills on time. If you are often 30 or more days late on multiple payments, they can view this as irresponsible behavior. If you're job involves managing money for the company or their clients, it's a legitimate reason to disqualify you. They may also look at your overall load of debt and credit you have available to you. Employers might see someone who has an abundant amount of debt and little available credit as a higher risk of stealing to make ends meet.
However, don't let every credit blemish worry you. Something such as cable bill sent to collections or a few missed payments over a long period of time most likely will be overlooked if the rest of the report shows an overall responsible handling of debt.
Now that you have done your homework, take any steps you can to famaliarize yourself with your own credit report and make repairs when possible. Next time you sign that applicant background check authorization form for the dreadful pre-employment check, you'll have nothing to worry about.
You, the informed applicant, now know this credit inquiry will not affect your credit score and you have already gathered your own credit report information for free. You’ve corrected any legitamate errors and you informed your employer of any possible negative findings. Now get back in the game without fear of the pre-employment credit check!
Please note: SafeScreener.com, Background Screening Made Simple Blog, and Background Screening Consultants LLC, do not provide legal advice. Postings, articles, press releases and other distributed or verbalized information should be considered as guidelines and suggestions based upon professional experience, research and industry best practices. Questions or decisions regarding employer’s legal rights or applicants legal rights should be directed towards legal representation.