Editorial Policy

Will Bad Credit Really Cost You Your Dream Job?

Marcia Frellick

August 2, 2012

Employers can consider a lot of things when deciding whether to hire you, and, in most states, that may include your credit report.

But if you’re close to landing your dream job, will poor credit be the thing that stands in your way.

That possibility is becoming increasingly less likely, according to a July 2012 survey from the Society for Human Resource Management (SHRM). The survey of 544 human resources professionals found several factors working in consumers’ favor:

Fewer employers are checking your credit in the first place: The number of employers who don’t check job candidates’ credit — 53 percent– is up considerably from SHRM’s survey two years ago, when 40 percent said they didn’t check. The number who check some candidates’ credit dropped from 47 percent to 34 percent in two years.

Even if they’re checking, employers still hire those with bad credit: Of the employers who said they do check at least some applicants’ credit history, 80 percent said they have hired people with bad credit anyway. Mark Schmit, vice president of research for SHRM, says that tells him employers know other factors are usually much more important.

“I think it’s a very positive sign that organizations are saying despite the blemishes they’re still hiring these folks.” – Mark Schmit, Society for Human Resources Management

“I think it’s a very positive sign that organizations are saying despite the blemishes they’re still hiring these folks,” Schmit says.

Government scrutiny is making employers nervous: The Equal Employment Opportunity Commission has filed suits recently against companies when it suspects pre-employment credit checks unfairly target minorities. These concerns are among the reasons eight states (including California, Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont and Washington) have put strong restrictions on employers using credit checks —  such as allowing them only if the way an applicant manages money is central to the job.

Some black marks are seen as out of your control: None of the employers surveyed this year said foreclosures would be considered in hiring, while 11 percent considered them two years ago.

While a foreclosure might have been more alarming before the recession, Schmit says, it is now seen as something that’s likely out of consumers’ control, with falling home prices and stagnant economic growth hitting certain parts of the country particularly hard. Medical debt and educational debt also attract less notice because they are less about choice and more about circumstance, Schmit says.

Credit checks are dead last in the factors employers consider. It’s important to note that credit check results were last in a list of nine factors employers considered most important in a final hiring decision. Only 9 percent considered credit history among the most important employee attributes — down from 14 percent who considered it important two years ago. Other factors were much more critical: previous experience (82 percent), being a good fit for the company (85 percent) and having skills specific to the job (80 percent).

It’s the big stuff that matters: A prospective employer won’t be alarmed that you forgot to pay your electrical bill. The top concerns in the survey were accounts in debt collection, current outstanding judgments and high debt-to-income ratios. What employers are looking for is “basically a financial catastrophe,” says Les Rosen, CEO of San Francisco-based Employment Screening Resources, a company that performs background checks.

Not all positions need credit checks: Only 13 percent of employers in the survey said they check all applicants.

“No employer in their right mind spends the time and the money to run mass credit reports as a tool to whittle down finalists,” Rosen says. “We urge that employers reserve credit reports for only the most sensitive positions involving access to large amounts of cash or fiduciary obligations. Why run a credit report on someone who’s going to be a $12-an-hour cashier? If you have good internal controls, if that person’s stealing, you’ll know at the end of the day because the register won’t be right.”

“It’s just a rule of life that things explained ahead of time have much less impact than the things employers find out about afterwards.” – Les Rosen, Employment Screening Resources

You get to explain your bad credit: Only 8 percent of employers said they don’t allow job candidates to give their side of the story. The smart applicant will check his or her own credit before applying and talk about any problems with the potential employer before the credit check, Rosen says.

“It’s just a rule of life that things explained ahead of time have much less impact than the things employers find out about afterwards,” Rosen says.

Besides, most HR people are well aware that these are tough economic times, Rosen points out.

“Most employers are not under the misconception that they have the luxury of hiring from an applicant pool of only perfect people,” he says.

Employers want to keep finalists in, not out:  The recruiting process is difficult and expensive, and if you’re down to the finalist stage, employers aren’t looking for a way to exclude you. In fact, they want you to succeed, says Rosen.

Credit checks going out of fashion?
Rosen says that, although credit reports can be a valuable hiring tool, he suspects credit checks’ days are numbered.

“My personal prediction is that it’s just a matter of time before credit reports become a disfavored tool in terms of employment,” Rosen says. “The handwriting’s on the wall.”

For one thing, credit checks cross a personal line and make companies uncomfortable. Whereas typical screening red flags such as committing crimes and racking up driving violations are done in the public realm, managing money is part of a person’s private life, Rosen says.

“Of all the background check tools that are used, a credit report is the one that comes closest to invading a perceived zone of privacy,” Rosen says.

Also, employers are generally uncomfortable making judgments with the credit information they have, Rosen says. If a person lies about past employment or education, it’s pretty clear he or she is untrustworthy. If a person has a criminal record, that’s also a clear liability. But if a person is late three times on a bill, that doesn’t necessarily say much about future job performance.

Your legal rights
You don’t have to let a potential employer take a look at your credit. Of course, if you say no, you might kill your chances in a competitive job market.

The Fair Credit Reporting Act (FCRA) requires employers to clearly disclose in writing that they may ask for a credit report and must ask for your written consent to do so. They are required to give you a copy of the report and a written description of your rights before making a decision in any way based on the report.

If you don’t get that job, you still have a right to know if your bad credit was the reason. The FCRA requires employers to show you the report and also must tell you how to get your own copy. The report is free if you ask for it within 60 days of getting turned down.