Why Do Employers Check Credit History?

When we start preparing for a job interview, the first thing most do is reviewing the most common interview questions. However, besides questions like, “what are your greatest strengths?” and “why do you want to work for this company”, there’s also more you should be thinking about. Since employers often use your credit report as a tool to help them to decide if they want to hire you, you need to also be thinking how to improve your credit score before your interview.

First, know how they are accessing your report, why they are interested in your credit report, and how you can raise your credit score.

Accessing Your Report

Many employers may want to look at your credit report before hiring you. Despite seeming a little extreme, this is completely legal. Even your current employer may want to check your credit report when considering you for a promotion, reassignment, changing your position to one that deals with money, or if deciding to keep you on. This won’t come as a shock to you because they have to ask your permission prior to accessing it so you will know if they do. You do have the option to decline. Credit reporting agencies give a partial credit report that is referred to as an “employment report” to employers seeking your report.

Why They are Interested in Your Credit Report

We know why our credit report matters when we are buying a house or car, applying for new credit card, or trying to rent a new apartment, but you may be curious why an employer would care. If the job position requires you to handle money, it’s a little more obvious since a credit report is a good indication of how you handle money. But even if your job doesn’t deal with money, employers feel that your credit report can give a glimpse into how you’ll be as a worker.

Employers want to feel that you are financially stable and not overwhelmed with debt and bills. Being consumed in debt can lead you to be distracted at your job. They also want to know you are organized, responsible, and dependable. If you mismanaged your finances, do not pay bills on time, or spend money on frivolous items, they may come to the conclusion that you can bring those same attributes to the job. Your employer wants to feel you are not a risk but a secure, level-headed, and accountable asset to the company.

How to Improve Your Credit Score

A low credit score doesn’t necessarily imply you’re a bad employee. Maybe a mistake or a job loss has caused a lower credit rating. There’s no need to worry because you can improve your credit score.

If you are asking yourself “how to improve credit score?” here are a few tips to get you started. Start by trying to pay down debt. Try to lower your interest rate or lower your payments so you can get ahead. Whether you have debt or not, you should always be trying to pay bills on time. Late payments negatively impact your credit score. Try to do this by enrolling in automatic bill pay or by keeping track of bills that come in, when they are due, and whether or not you paid them. Also, be sure to be aware of your credit report. Check it for errors that can be taking a negative toll on your credit.

About the Author

By , on Aug 9, 2012
Ray is the owner and primary author of Financial Highway, where he discusses investing, saving and practical money management concepts. You can subscribe to his RSS feed or follow him on Twitter.

Leave Your Comment (6 Comments)

  1. Dave says:

    This trend has liability written all over it. With the levels of identity theft being as high as it is, the potential for abuse is monumental. This is a gross and disgusting way for an employer to weed out candidates for open positions. A background check will yield more about a person than a credit check, to me its just another nosy body looking to be the next Gladys Cravitz. I can understand high security positions, but they just don’t stop at the credit check they go further. Its not necessary for an employer to engage in this type of egregious behavior. Some human resources professionals will attempt to excuse the use of a credit check to help them to better sort out candidates for an open position. Bad form guys, bad form!

  2. Unfortunately this is true. It makes a difference in the loan rates people get too. I’ve been reading a book about people in minimum wage jobs. They often quit those jobs after a little while because of the difficult working conditions. Paying bills on time (affecting the credit score) is so difficult when making so little money. It’s pretty darn tough.

  3. I would think that a not so good credit report would also make the employer think you needed the job to pay down your debt and this might make you a good hire.

  4. Cherleen says:

    I believe that credit report also shows how responsible an individual is. If I am an employer and a prospective employee’s credit report shows that he has several loans, missed or late payments, and needs great lesson on financial management, I will need to ask him more questions and might think twice before hiring him. If he was unable to attend to his personal obligations, what is my guarantee that he will exhibit a sense of duty and perform his job?

    • lea says:

      I have had 3 jobs in my lifetime and i am 44 years old.I have a great work ethic and hardly call in and always give 100%.credit has nothing to do with my work ethic.I have bad credit from my divorce and medical bills but that doesnt mean I am a bad person.

  5. Mike says:

    I agree with the statement “employers feel that your credit report can give a glimpse into how you’ll be as a worker” because I’ve seen this happen with my own eyes; I just think it is a ridiculous way to assess someone’s potential work ethic.

    Think about it. Someone has bad credit because they are struggling to pay bills. So they go look for more or better paying work. However, the employer says “Oh! We aren’t going to give this person a job because they are struggling to pay and manage their debt”. Makes no sense!!

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