Bad credit can hurt your job hunt
From the mailbag:
I have less than a year before I graduate. I will be in the IT field, most likely a Network Administrator. The pay rate is pretty nice in these parts. Though I am at the top of my class, as far as my credit goes… I am scared for my future! I would like to know if cleaning up my credit starting next pay period, lol, would help my chances at landing the so-called perfect job when I finally get out of here? I am 29 so imagine how much damage I have created since 18, with that first “so you are off to college?” credit card everyone receives.
I guess what I’m asking is, does HR look up credit scores?
-TR
I fear a little bit for you too TR. HR departments do often pull credit reports and use them to evaluate candidates. And even though governments do it quite a bit more than the private sector, it has been rising in use there as well. A recent study by SHRM shows that 35% of employers use credit background checks as part of their screening process. That means, if you are applying for three jobs, one of those, on average, will be hitting your credit profile and seeing your “whoops” and “oops.”
But how they use that information is another thing altogether. Many employers are looking for consistency of what story your resume tells about you. So if you say you’ve been in school in Atlanta but all of your credit records point to an address in Michigan, there might be a problem. Many HR vendors have said that the use of credit reports has gone down though and that adverse action taken because of information contained in a credit report is around the 5% range. If you have a criminal record or have lied on your resume, you are much more likely to get your job offer revoked than a credit blemish or two.
And really, in the scheme of things, that 5% isn’t a huge figure to worry about.
But…
You are talking about a Network Administrator job. This would be one of those jobs that has “high sensitivity” written all over it. I am not surprised to hear about double standards in background checks for people in sensitive positions (IT, accounting, finance, executive, HR). When you have access to information that most other people in the company do not, that’s certainly a risk factor.
So yes, HR is likely to check your credit background and in some cases, bad credit may disqualify you from a job. Your mileage may vary though.
Is it enough of a concern to pull your credit report and start to understand it and correct any mistakes? I think so. You have time to get some of those mistakes cleared out and get some of your current issues out of delinquency status in time for a sweet, well paid job. Not to mention that a good credit score can help you in other ways too.
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Your HR Guy is a Human Resources Generalist practicing in the field. But don't let that fool you, this isn't a boring blog. I seek relevance and humor in a place we will spend much of our lives. Everything from workplace issues, job seeking and terrible bosses. Read more...
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Thankfully, any company that checks your credit has to have your permission to do so. Any company that uses a third party vendor to check it must comply with the FCRA. It’s a good idea to know your rights under the FCRA as a potential employee. Check out http://www.equifax.com/cs/Satellite?pagename=elearning_credit14 or simply Google FCRA.
There are a couple different schools of thought when it comes to checking candidate’s credit. Personally, unless someone is going to manage the money of an organization I think it is a complete waste of time. It adversely affects minorities (I have seen this happen over and over and over) and doesn’t prove a darn thing about performance or trustworthiness of an employee. I actually did a study regarding this at two different companies (in order to get credit checks thrown out as part of the recruiting process) and successfully showed zero correlation between credit history and performance both times. It just doesn’t hold water in my opinion.
PS I have excellent credit
Unless pulling a credit is due to a business necessity, meaning that there is a Legitimate business need to pull the credit due to the job description, then Employers are encouraged by the EEOC NOT to pull credit as it can be cause of adverse immpact - this is based upon the EEOC’s E-RACE (Eradicating Racism and Colorism from Employment) Initiative that was released in February
Generally business necessity would be a position which requires handling Money, ie banking and other financial positions.
Ironically research has proven that negative credit does NOT Negatively impact job performance, but actually quite the opposite will happen.
Unfortunately Companies have utilized Credit for too long to rule out potential candidates based upon credit, and the EEOC has now stated, this can unfairly impact many diversity and minority candidates.
See http://jimstroud.com/2007/07/28/credit-checks-and-the-eeoc/
Please feel free to call me for more information
Karen M
858-6658-3111
It should also be mentioned that any company checking your background through a third party provider must get your permission and must inform you of your rights. But that includes virtually any report on a person’s background. If you are doing a criminal and identity check on a person, they have rights under FCRA. So seeing an FCRA form doesn’t necessarily mean they are checking your credit but it is an indicator that it is a possibility. It is best to check with them to see what the background investigation entails.
Karen, the issue is always going to have some gray areas to this but I am going to challenge a couple things that you’ve said.
Generally business necessity would be a position which requires handling Money, ie banking and other financial positions.
That’s not true anymore. Anyone who has access to any sensitive information can potentially be a risk. If you are in HR, you have access to social security cards, birth dates, addresses, contacts and could perpetuate identity theft fairly easily. A person in IT at an e-commerce company has access to credit card numbers for all of their transactions.
Ironically research has proven that negative credit does NOT Negatively impact job performance, but actually quite the opposite will happen.
I have no problem with saying it probably doesn’t impact job performance but what research are you citing to back up the claim that “quite the opposite will happen”?
Advocating credit checks for sensitive positions isn’t typically about performance. It is about risk mitigation. Somebody can be an excellent employee performance wise and be stealing information and selling it to the highest bidder. That’s why criminal background checks are done too (I don’t think felons necessarily have work performance issues but they certainly have risk issues associated with hiring them).
Lance you are absolutely right about the FCRA. It covers consumer reports and the latter can contain even reference checking if performed by a third party.
My main problem with the credit report being used by employers is how does poor credit tell a company if a candidate will lie, cheat and steal (etc)? I would think a criminal background check in the counties a candidate has resided in the past 7 years would be the tool employers would want to use to determine if a candidate is a risk. I just don’t see the relation between poor credit and liklihood of criminal activity.
Having done research on my own (albeit my samples are pretty small versus the entire US population!) that showed no correlation between poor credit and poor performance just really sealed the deal for me.
I totally agree. Bad credit history reflects an attitude problem on part of the employee. The candidate could be lackadaisical in nature or extravagant or simply careless. One needs to be proper with their credit histories.
It’s not as easy as bad credit, good credit. Sometimes life throws you major curve balls, and the system can screw you. I know my credit has taken shots thanks to an outrageous amount of child support I have to pay a month, and a crippling divorce. I can understand glancing at it and throwing it into the mix for a decision but it shouldn’t reflect to heavily. In my case I served over 10 years in the military and recieved an honorable discharge. I have no criminal history and I’m a college graduate to boot. My work is dependable and constantly seen as above my peers. I’ve been late on paying a bill a time or two but is it really that I’m unreliable or is it that for 7 years I made 30k a year and so far I’ve spent over 150k in that time on child support. Throw in you have to pay rent and the utilities and yeah sometimes your Visa has to get paid late. It isn’t because you want to but because you didn’t have it to give them. Then toss in that you have to pay the legal fees for the divorce and she empties your savings accounts. The law can really play hell with you, and by the time they tell her hey that’s not yours, you can’t have that, give it back it’s to late and now you have to pay more to try and get back what should have never been taken in the first place. For example when I left active duty I had to take a job in the civilian world making less then I made in the service and my child support was readjusted to a lower rate. Awesome right? Until you throw in that it took 6 months for the state to get the order done right, and for my out of state company to get all the required documents reducing the amount. Sure the state back dated it saying I didn’t owe anything but it didn’t help because I was paying almost 450 dollars more a month then I should have been paying. That’s a lot of money to just go out the window with no way to get it back or get a credit forward on it. Not everyone comes from a decent well to do family. Some of us come from less then great backgrounds and work hard, but just can’t get a head. And for anyone that says otherwise. Honestly have you ever had to choose between paying your last 20 bucks to visa or trying to find a way to get enough groceries for 20 bucks to last 2 weeks. If you’ve never been there then I doubt you would respect or understand how hard it can be, especially if you have no living relatives to help you.
If a compant runs a credit report on you and turns you down for the job. And you are the best person for the job. do you have any action you can take. my credit is bab. but not because i jus didnt pay my bill but because i cant get a job to pay off the bills that i do owe on. Is there any thing i can do?
HR will eventually will have to stop checking your credit score due to it Violating our Rigts. Due some research and you will find out that its Job discriminating, and Job segregating. We are in a credit crisis as we speak, unemployment has gone up to 5.5% and climing, our currency is taking an effect on everything we buy, and we are in more than 9 trillion dollars in trade deficet with China. We have forgotten to save to buy things later. Lets educate about money in High School so the future Kids cant be in the same shoes most average americans are in now.