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Your credit score is as important before applying for a new job as your cover letter and resume. Practicing answers to tricky interview questions is one thing, but a good credit report should not be underestimated.
Prospective employers can’t see your credit score, unlike loan providers. What can they see when they carry out a pre-employment screening? Here’s what we learned from UnMask on the subject.
Data from a 2018 NABS-sponsored (National Association of Background Screeners) report show that 95% of employers conduct some kind of screening on job applicants. Just under a third run a credit check.
Reasons Employers Look at Credit
According to the report, the main reason companies look at credit is to protect their customers and employees. Credit reports can verify one’s education, background, and identity. They show a candidate’s previous employers, which is very useful in case of resume gaps. The information they provide can help prevent financial losses and damage to reputation due to embezzlement or theft.
Employers find credit history to be one of the most effective measures of financial responsibility. Whether a candidate is financially distressed is important to a prospective hirer, particularly if their job will involve handling funds.
Typically, employers will only run a credit check on approved applicants. Credit is the last thing they check in most cases. These checks cost companies quite a bit of money and time, so they rarely check every applicant. Moreover, they are not likely to run one if you didn’t apply for a finance-related position.
Credit reports are not the same as credit scores. Reports give details about one’s credit history, including balances, payment history, available credit, and credit or debit card information. A credit score, on the other hand, sums up all this information into a 3-digit rating. A low score makes one a high credit risk and vice versa.
What Will Your Future Employer See?
Your future employer won’t see your date of birth or your credit score. Other than that, they’ll see everything a lender would. Employers get access to your credit history, legal activity, insurance, and previous employment. They will also see any bankruptcies and collection accounts, mortgages or other open credit lines, car loans, student loans, outstanding balances, missed or late payments, and any foreclosures. The good news is that they aren’t allowed to run credit checks without informing you in advance. The Fair Credit Reporting Act prohibits it. They need to get your written consent before they can check your credit.
Are There any Risks?
The employer must give the applicant notice that they intend to obtain a credit report, which is different in all other credit reporting scenarios. The applicant must give written consent to the check. Should you refuse? You can, but you’d risk the employer assuming the worst. Employers can’t use credit history to make hiring decisions in most states.
A credit check won’t damage your rating. In other words, conducting a check won’t affect your credit score. Employment inquiries do not factor in credit scoring systems. Nobody apart from you and your employer will know about the inquiry unless they outsource the check to a third-party provider. Then, this party will get the info too.
Unlike lenders, employers tend to evaluate candidates based on their extended credit history, which reaches up to seven years back. Your recent history may be good, but an employer might still ask about a major discrepancy from several years ago.
Preparing for an Employer’s Background Check
The best preparation is knowing what your credit history will reveal before the fact. We recommend obtaining a credit report before you apply for any job. You don’t want to be confronted about negative credit information during the interview. The most successful applicants get all the details ahead of time and are prepared to explain any negative occurrences.
The main credit bureaus – TransUnion, Equifax, and Experian – offer one free credit report each year. Federal law authorizes free access to these reports. It’s a good idea to request a report from each bureau; just don’t access all three simultaneously. Ideally, get one report every four months, so you always get current information.
Your future employer may be authorized to request your credit report, but this information is not the only consideration in a hiring decision. Don’t miss or delay payments, especially utilities and any loan installments. This will go a long way toward demonstrating a credit history that you can be proud of.