Bad credit can hinder job search, but doesn't always

By Erica Sandberg

Opening Credits

Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com. Ask a question. 'Opening Credits' stories

Dear Opening Credits,
Why do employers care about my credit report? I have been unemployed for three months and used my credit to get by. Now it's destroyed and I can't find a job, and I think it's because of my credit problems. But if I had a job, I could pay it off! So what do I do now? -- Mariah

Dear Mariah,
Could a weak credit report impair your ability to gain employment? While it's possible -- and certainly worth exploring -- it may not be a factor at all.

It's true that many companies assess a job candidate's report before hiring, and having one that looks terrific rather than awful can work in your favor. But why would an employer pull your report in the first place? They'd do it because they're looking for objective insight into your character, financial acumen and overall level of stability. After all, you may say you're a perfectionist, but if they see a bunch of unpaid bills on your credit report, those words may not mean much.

Still, your concerns about the impact of your credit reports may be having at this stage may be unfounded, especially if you've yet to be invited in for a face-to-face interview.

There are many myths surrounding credit reports and employment. To get to the bottom of how they are really being used, I spoke with Lester Rosen, president and CEO of Employment Screening Resources, a credit reporting agency and human resources consulting firm based in Novato, Calif.

Employers don't randomly access credit reports from all job applicants. They only do so for those who are solid candidates, says Rosen. "If they are pulling it, congratulations! They are doing a background check, and that is good news, as they are seriously considering you for the position. They won't run it before you are a finalist." He also says they aren't checked for all occupations or industries. Most employers are looking at credit reports for people applying for positions that are clearly related to finance or have access to cash or credit. And in general, they don't access credit reports for people applying for minimum wage jobs.

The only way an employer can pull your report is with your permission. Therefore, if they ask, head over to the human resources department and explain your situation -- you borrowed money and got into a tight spot because you've been out of work. It's a temporary problem and one that you will swiftly resolve when you are back to work as usual.

Do know, though, that a potential boss does not have access to the same type of reports that lenders do. The ones employers can see never include your credit scores or list your date of birth. All they can view is your credit history. Oh, and if you're concerned about how these credit report pulls may harm your report further, you can relax. Unlike when a prospective creditor checks it, no "inquiry" will be listed.

As for the real impact of your credit damage, Rosen recommends that you not worry about even that too much. "Our experience is that employers are very sensitive to the fact that credit reports are not perfect. And everyone in the world knows there is a recession, and employers take that into consideration. It's a misconception that people are being blacklisted because of their credit reports." However, if the employer does makes an adverse decision based on your report, you have a right to know about it and get a copy of the report they used.

I do suggest obtaining your reports now and checking them carefully for accuracy. There could be mistakes on them that need correcting. Focus on paying on time, too.  Although high balances can be perceived as a problem, by making at least the minimum payments on your accounts, you can establish good faith and appear responsible.

You've got a lot to do right now, Mariah. Don't be distracted by things that might not really matter. With effort and in time, you'll be receiving paychecks yet again -- and then you can concentrate on creating a healthier financial future.

See related: Compare bad credit credit cards, Better credit can mean better job prospects, Options are limited for bad credit customers, 9 tips for job seekers with bad credit, How bad credit affects a new marriage

Erica Sandberg's articles and insight are featured in such publications as the Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSNMoney.com, and Smartmoney.com. An active television and radio commentator, Erica is the credit and money management expert for San Francisco’s KRON-TV, a frequent guest on Forbes Video Network, Fox Business News, Businessweek-TV, and all Bay Area networks. Prior to launching her own reporting and consulting business, she was affiliated with Consumer Credit Counseling Services of San Francisco where she counseled individuals, conducted educational workshops, and led the media relations department. Erica is a member of the Society of American Business Editors and Writers, and on the advisory committee for Project Money.

Send your question to Erica.

Published: August 11, 2010

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