Whether your company shuts down or you’re straight out of college and looking for a job, it’s likely you have expenses and bills to cover. Without a job, however, it’s difficult to keep up with monthly payments along with living expenses, which can negatively affect your credit reports rather quickly. Though one of the last things an unemployed person needs is another roadblock to deal with, bad credit can, unfortunately, end up being yet another challenge in your search for employment.
Credit Reports in the Hiring Process
As part of the hiring process, some prospective employers do check applicants’ credit reports before making a final decision. Though it seems to make sense for certain job fields relating to money, for example, it is possible to be turned down for employment in any field, simply because of what appears on your credit report. If you have bad credit, you can make it through the application and interview process, only to be disqualified at a later stage in the process.
[See: 12 Ways to Be a More Mindful Spender.]
While your credit report may be pulled by employers, your FICO Score will not be pulled. “A common misperception is that a low FICO Score will hamper your employment opportunities,” explains Tom Quinn, vice president of consumer scores for the Fair Isaac Corporation, creators of the FICO Score. “In reality, credit reports pulled for employment screening purposes are not supposed to have any credit score appended. So the employer should have no awareness of your FICO Score.”
However, even without a FICO score, a credit report can still reveal many financial problems such as your overall credit history, bankruptcies, and judgments against you.
Reasons for Denying Employees With Bad Credit
There are a few reasons an employer might think it’s best to pass on someone who has bad credit. In positions, such as in finance, where managing and handling money are significant responsibilities, the most common fear is that there is a higher risk of theft or embezzlement occurring with someone who is having financial difficulty.
[See: 9 Scary Things Consumers Do With Their Money.]
Further, there is the belief that if you cannot manage your own finances, you may not have the skills necessary to adequately manage the company’s either. Employers may also examine credit reports for indications of untrustworthiness or illegal activity, especially in positions that require increased responsibility such as in government or medical jobs. Further, if you frequently forget to make monthly payments, you might easily forget any number of duties and responsibilities at work, which isn’t attractive to many employers.
Bad Credit Can Be the Deciding Factor
When it comes to making a decision between you and another applicant with similar skills, ability and education, the deciding factor could rest upon the applicant with the better-than-average credit report. When faced with the choice between two great applicants, the employer may feel as if the safest and most reasonable bet is the person with the clean credit report versus the one with negatives and the history of financial difficulty.
Credit Problems Can Indicate Personal Problems
Bad credit can also indicate problems at home that employers may fear will affect job performance. Although everyone deals with lifestyle changes like divorces and family matters, these can be difficult situations that could potentially have a direct impact on employee productivity and position. To an employer, missed payments, multiple accounts that haven’t been managed well, judgments and other negatives on your credit report can raise a red flag and warn of potential problems that extend beyond just needing a job.
Being Prepared With an Explanation Can Help
Many people have some kind of negative on their credit reports, but if you can reasonably explain the cause and how you plan to address the problem, you have a better chance of being hired than someone who has no explanation at all.
Further, many employers will overlook bad debt when it concerns medical bills, illness or an accident outside of normal circumstances. The bad debt that can affect your job search the most, however, is frequently missed or late payments, judgments or a long history of bad credit that appears as if you aren’t able or care to responsibly manage your finances.
[See: How to Live on $13,000 a Year.]
Employers must ask your permission before checking your credit reports, but not providing consent could mean you are automatically disqualified from the position. Ten states, including California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington, limit how much an employer can use your credit information in employment.
In any event, if you are searching for a job or are planning to jump back into the job market, your chances are better if you clean up your credit reports as much as you can first.
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How Bad Credit May Kill Your Job Prospects originally appeared on usnews.com
