Bad Credit Reports Can Limit Job Prospects

/ BY / Credit Score

After months of searching, Kyle thought he finally had a lead on a good job. His qualifications seemed a perfect match for the position, and the interview had gone very well. But after a week or so, Kyle was disappointed to learn that someone else had gotten the position. The prospective employer decided to hire another candidate because of Kyle's poor credit report.

Sara, on the other hand, had been in her job for three years and was in line (she thought) for a big promotion. But she discovered that she had been denied the job that she wanted because her credit record showed that she was behind on credit card and car loan payments.

More and more companies have been checking the credit reports of prospective and current employees as a means of filtering job applications and determining who will get better positions. Employers say it's a reasonable factor to consider: the way that a person handles credit will indicate his/her ability to act responsibly. Critics of the practice, however, argue that many people got behind on their bills when they lost their jobs due to the severe economic downturn. It's unfair to punish those who have already suffered economic distress by denying jobs to them.

Employers are permitted under federal law to use credit reports as part of their job screening process. But they must follow specific guidelines when they do so. Meanwhile, eight states have either limited or prohibited the use of credit reports in the hiring process: California, Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont and Washington. The National Conference of State Legislators National Conference of State Legislators reports that 19 more states and the District of Columbia are currently considering similar legislation.

Know your rights

The Federal Trade Commission provides a detailed fact sheet on Employment Background Checks and Credit reports. It includes an explanation of your rights under the Fair Credit Reporting Act regarding your credit record and employers.

  • A company evaluating you for employment or promotion must get your approval to check your credit record. This should be in a separate document, and not be included in the employment application. (Unfortunately, this may not offer as much protection as it appears. If you don't agree to let the company get a copy of your credit record, it has no obligation to continue to process your job application.)
  • If a company is considering taking "adverse action" against you based on your credit report - denying you a job or a promotion, or even reassigning you or firing you - you do have some rights. The company must give you a copy of the credit report that it is using in considering your employment situation. It must also give you a copy of A Summary of Your Rights under the Fair Credit Reporting Act. This document will explain how you can review your credit report and correct any errors on it.
  • If a company actually takes the "adverse action" against you, it must supply you with the name, address and phone number of the credit reporting agency and a notice of your right to dispute the information in your report.

Know before you go

If you're currently looking for a job, be proactive and take a look at your credit record so you can correct any mistakes before an employer asks for it. Under federal law, you're entitled to a free copy of your credit report from each of the major credit bureaus once each year. (To order, visit AnnualCreditReport.com or call 1-877-322-8228. When you order, you'll need to provide your name, address, Social Security number, and date of birth.)

If your credit report is less than stellar, take steps now to improve your credit so that the next time you're up for a job you have a better chance of landing it.

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