Editorial Policy

4 Myths About Employer Credit Checks

Erica Sandberg

November 3, 2011

QDear Erica,
I lost a job solely because of my credit rating. I was the perfect candidate — the front-runner — and the job was mine until they ran a credit check. I had lost my job due to downsizing, was ineligible for Worker’s Comp, had a family emergency and, for the first time in my life, hadn’t been able to find work for over a year. As a result, my payments fell behind and I quickly lost my excellent credit rating, although for a solid 10 years prior, my credit rating had been A-1.
Anticipating some credit report blow-back, I wrote a letter of explanation about my current financial situation and submitted it with my application, in the hope that my forthrightness would have some bearing on the situation if they did, in fact, check my credit. I was informed that my poor credit rating had, indeed, cost me the job.

I believe more and more companies are pulling credit reports because they can, and, yes, I know from personal experience that your FICO score will be a factor if you are competing with others for the same position.

Personally, I do not think employers ought to routinely check credit reports unless the position is in accounting or you sign checks, handle cash or credit cards. I fear employers are going to be losing some wonderful, qualified, loyal employees simply because people fell on hard times and aren’t given another chance to redeem themselves. How do you repair your credit rating if you can’t get a job because of a poor credit rating? — Josh

ADear Josh,
As a prospective employee with damaged credit, of course you do not want your financial history held against you. Employers, however, would like to use every available — and I dare say relevant — tool to help them make informed and accurate hiring decisions.

With unemployment peaking throughout the country, the competition for good jobs is fierce. You’re up against people who are as qualified as you, but who may have credit reports that indicate no debt and perfect payments. A potential boss might believe that the financially sound candidate is more responsible and therefore less of a risk than someone who’s accounts all went into collections. While that sounds unfair, be objective for a moment. If you were in their position, you just might do the same. Ask Erica

Regarding your job search, however, you did the right thing when you were upfront about your less-than-glowing report. Most employers will take your explanation (and the economy) under consideration.

Still, wait until they ask permission to pull it before letting on that you’ve had some financial problems or you might be alarming them unnecessarily. By the time they ask to see the report, the hiring managers aren’t looking for a reason to discard you, but instead are checking to see if anything is glaringly amiss.

That said, there are a few of fallacies about the credit check process and employment that you mentioned that must be rectified:

  • The majority of companies don’t pull credit reports. And those that do check won’t do so for all positions. In fact, in some states a credit review is restricted to positions that involve money or sensitive information, staff management and legal duties (like law enforcement).
  • Employers are not allowed to access your credit scores. They may look at your reports, but your score is off limits (as is, by the way, your date of birth). Therefore, if they told you your FICO was a disqualifying factor and you have that in writing, you may want to seek legal counsel.
  • Your credit report may not be that important. Many in human resources who are in the position to look at credit reports are unclear about how to analyze them and don’t know how to apply the information they do see to the position — so they give them no more than a cursory glance. Even a damaged report may have no impact at all.
  • “Normal” debt is not as much of a problem as you may think. The recession has taken a toll on millions of Americans. Owing money and falling behind on payments is common and is often forgiven. What does have a strong, harder to explain, effect? A DUI or similar legal judgment.

I very much want you to get back on the payrolls and out of this mess, so keep trying. Eventually, you will land a job and when you do, you can improve your credit report (and relieve stress) by deleting the debt and resuming a perfect payment pattern.