A sparkling resume and well-crafted cover letter aren’t enough these days. Now job-seeking graduates and career-changers alike have to worry about their credit history, too.A 2010 survey conducted by the Society for Human Resource Management (SHRM) found that 60 per cent of employers conduct credit checks for some job candidates. A severe negative mark on your credit report could keep you from landing your dream job.
The good news is that 57 per cent of candidate credit checks are performed after a tentative job offer, according to the survey; you have to get pretty far along in the interview process before worrying about a credit check. Most employers aren’t checking credit reports as a way to pre-screen large candidate pools because it’s time-consuming and expensive. Plus, it’s only a soft pull on your credit, meaning it won’t do any damage to your credit score.
The question of whether or not employer credit checks are fair is still up for debate. Several labour advocacy and civil rights groups have protested the practice, and new legislation is cropping up to limit candidate credit checks. Several states—California, Connecticut, Hawaii, Illinois, Maryland, Oregon and Washington—are restricting it.
The fact that employers are still checking credit reports is surprising, especially given that a correlation between credit history and job performance has yet to be found. However, the fact remains that—at least for now—your credit report could affect your job offers.
What to Do Before the Job Search
The first and most important step to take is to know what’s in your credit report, which you can only do by checking it on a regular basis. Go to AnnualCreditReport.com, where you’re entitled to a free copy of your credit report from each of the three major credit bureaus.
Scan your credit report first for any errors, which you should correct before you start your job search. “Given that 25 per cent of credit reports have some sort of error, consumers should check their report at least once per year,” says CreditKarma.com CEO Ken Lin. Read about how to dispute a credit report error at the FTC’s website.
Next, check your credit report for some items employers may see as red flags, and deal with them.
High Credit Utilization: This is the percentage of your total credit card limits you’re currently using. In general, a credit utilization rate of less than 30 per cent is considered healthy. If your credit utilization is high, it shows employers that you’re in over your head and can’t stick to a budget.
If you have high credit utilization, curb your credit spending. Calculate 30 per cent of your total credit limits; that’s the number you should stay under to avoid overutilization. To help you reduce your credit spending and keep your balances low, sign up for Adaptu, which has budgeting tools and an online community to keep you motivated.
Several New Credit Inquiries: If you apply for multiple credit cards during a short period of time, you’ll get hit with a hard credit inquiry for each application. Each inquiry will ding your credit score by a few points, but more importantly, a bunch of credit inquiries could show employers that you are desperate for the access to extra cash in a hurry.
If you’ve applied for several credit cards recently, know that credit inquiries have a smaller impact after a couple of months. Avoid applying for any more credit cards, particularly during your job search.
Significant Debt or Bankruptcy: Your total debt includes credit card balances owed as well as any outstanding loan balances. Since your potential employer knows how much your salary could be, he’ll also know how well you’ll be able to manage that large debt. And while employers aren’t supposed to discriminate against you if you have a bankruptcy, they might see it as an indicator of how well you’ll manage work responsibilities.
If you’re struggling to pay back a lot of debt, check out a tool like ReadyForZero, which will help you prioritise your debt repayment. If you have a bankruptcy on your credit report, there’s nothing you can do to remove it. However, make sure you know when it will fall off your report. A bankruptcy can remain on your credit report for up to 10 years.
What to Do If an Employer Requests a Credit Check
When it comes to a red-flag item on your credit report, “be prepared to talk about it,” says CreditCardGuide.com editor-at-large Erica Sandberg. “Figure out what you might say and how you might explain it away. Get used to talking about those issues.” An employer could be sympathetic to your plight; the SHRM survey found that 82 per cent of employers allow job candidates to explain the negative information on their credit report.
Remember that an employer can’t check your credit report without your explicit consent, but if you refuse to let them check it, they might not offer you the job. If your credit keeps you from getting a job, you have the right to a copy of your credit report, according to the Fair Credit Reporting Act.
Most of all don’t let your fear of a credit check keep you from applying for a great job. “There are a lot of negative associations with pulling these credit reports,” adds Sandberg. “Yes, employers can pull them. Most of the time they don’t. Even when they do, it’s a positive sign.”