As I wrote on my Forbes blog, Bad credit can cost you a job, whether you’re looking to change careers, find a new job, get promoted, or just keep the one you have, a messy credit report can trip you up.
Employer credit checks are blocking the nation’s hardest-hit job seekers from entering the workforce, new research finds.
One in four unemployed Americans had to go through a credit check to apply for a job, and one in ten were turned away from a job because of information in their credit report, according to a investigation by the Demos think tank of about 1,000 low- and middle-income households with credit card debt.
Six in ten private employers check the credit histories of at least some of their applicants, and 13 percent perform them on all applicants, according to a survey by the Society for Human Resource Management.
Why? Presumably to prevent theft or embezzlement, fear of hiring error lawsuits if their employees do something wrong, or to get a feel for the overall reliability of a candidate for a job. They are also used to select candidates for positions with financial responsibilities.
Typically, employers perform these checks for job seekers applying for positions of financial responsibility, for senior management positions and for positions with access to highly confidential employee information, according to the report.
This trend extends to all industries — they are not exclusive to financial institutions.
Is it right? Should employers judge your ability to perform a job based on your performance in paying bills?
“Employer credit checks are common and they prevent people from getting jobs,” said Amy Traub, senior policy analyst at Demos and author of the report.
Bad credit is often a consequence of unemployment and loss of health insurance, Demos found. Another common cause of bad credit is medical debt.
The Demos survey also cited errors on credit reports such as job seekers’ credit.
As Richard Eisenberg reports in this Blog Next Avenue, a government study finds that credit bureau errors are rampant.
It is something that you can control. I will explain what you can do below.
In truth, the majority of employers say that a credit check is not the most important factor in a hiring decision, but previous work experience is, according to SHRM.
I understand why employers would use this tool as part of their due diligence when screening future employees.
It can be annoying though, especially when someone has been bowled over by a job loss or a medical crisis, but it is a reality in our digital world.
Don’t play the victim.
First, by law, employers are not allowed to perform a credit check without your permission. And they have to tell you if you’ve lost your job because of your credit history.
Most importantly, they should give you the option to explain the black dots or dispute the incorrect information if there is anything.
Having said that, in my opinion, most employers are not going to tell you that it was your credit that killed your chances and is risking opening that box of worms.
I guess they’re more than likely to say that they’ve changed direction in what they were looking for in a candidate for the job, or a pretty general and oblique explanation why you were ignored.
Here are my proactive tips.
1. Go there first. Pull your report before an employer does and clean up any mistakes.
2. Check your credit report for errors annually. Visit www.annualcreditreport.com to Request a free credit report from the three major consumer credit reporting agencies: Experian, Equifax and TransUnion. Correcting mistakes can take a bit of time, so if you’re considering that next job, a second verse, go for it. You can also check your credit score and report card for free with Credit.com.
3. Prepare an explanation. If you find negative information in your report that is okay, plan what you’re going to say to a potential employer. At least you won’t be caught off guard and have a chance to make your case.
On the bright side, there has been some good news in the credit reporting world this week. VantageScore Solutions, which is owned by the three major credit bureaus (Experian, Equifax and Transunion), has announced the latest version of its credit scoring model.
It omits negative credit information resulting from a natural disaster. Most importantly, collection accounts that have been settled or paid will not be included in the score. Many consumers don’t know that currently paying off a collection doesn’t necessarily rehabilitate a credit score, writes Michael Schreiber, editor of Credit.com, in this article. Blog.
Other scoring models, including the market-leading FICO score and previous VantageScore models, treat collection accounts – even those that have been repaid – as predictive of a consumer’s likelihood of repaying future debts.
My last question for you: have you been turned down for a new job because of your credit report?
Follow me on Twitter @KerryHannon I am the author of Good Jobs for Everyone 50+: Finding a Job That Makes You Healthy and Happy… and Pays the Bills (John Wiley and son), available here www.kerryhannon.com. Discover my column at AARP. My weekly column on PBS NextAvenue.org is here.