Why do employers check credit history? Employers use credit reports to judge how responsible you are and to determine how financially stable you are. The results of a credit check can hinder your chances of getting a job offer if your credit report isn’t top notch.
Employers, can with your permission, check your credit history as part of the job application process and what they discover can be an issue for job seekers.
Authorizing a Credit Check
Before a company can run a credit report for employment purposes, they must notify you in writing and get your written authorization.
What items in your credit report could be a problem when it comes to getting hired? There are several red flags that employers are going to pay attention to if they run a credit report and use it as part of the decision making process.
Credit Report Red Flags
Ken Lin, CEO of Credit Karma, share information on the items in a person’s credit report may appear as red flags to employers. These red flags include:
- Liens – Any type of lien against you could be a sign of irresponsibility. It suggests to employers that you weren’t responsible enough to pay off your debt or negotiate a settlement.
- 100% Credit Utilization – This shows employers that you’re in over your head and can’t stick to a budget.
- Bankruptcy/Foreclosure – Again this shows a lack of responsibility with things you’re committed to. To an employer this could suggest that you’ll bail on large projects and aren’t resourceful enough. It also may suggest that you don’t have long term visibility.
- Recent Late Fees – Recent 30, 60, or 90 day late fees show finances are causing you significant stress. This activity may appear as more of a red flag for financial positions because it suggests you have trouble budgeting.
- Significant Activity – A recent opening of several new accounts or closing of several accounts could appear as a red flag. Significant new activity may trigger employees to think you are desperate and need extra credit because you are in over your head. Closing several accounts could appear as a sign that you aren’t good with money and don’t know how to avoid charging up a large sum of debt