7 Steps to Deal With Employers Looking at Your Credit Report

Employers don’t like surprises. They want to know everything there is to know about you, which is why you shouldn’t be surprised to learn that many look at prospective employees’ credit reports as part of their application process. One 2010 study from the Society of Human Resource Management estimates that 60% of companies checked some (or all) job applicants’ credit reports. This is a practice that many people understandably find objectionable – some find it offensive. After all, credit reports often have errors. Nevertheless, it’s a reality — one that anyone looking for a job needs to consider. The truth is, applying for a job is more art than science. Consider the wisdom of Christopher Gardner, played by Will Smith in the movie “The Pursuit of Happyness.”

MARTIN FROHM: What would you say if a man walked in here with no shirt, and I hired him?

CHRISTOPHER GARDNER: He must have had on some really nice pants.

The reason many employers like to see credit reports is straightforward: Many believe that someone drowning in debt will be more focused on his or her personal financial issues than work, or that a long history of unpaid bills, foreclosures and delinquencies could be indicative of a lack of responsibility and good decision making skills that could ultimately hamper job performance. And if any of those negative elements exist within your credit report, they are going to want an explanation. In other words, if you’re not wearing a shirt, you’d better have on a nice pair of pants.

Now, there are limitations. Nine states have passed laws limiting the practice. Congressman Steve Cohen (D-Tenn.) introduced the Equal Employment for All Act, which bars employers from considering credit reports in the hiring process except for jobs that require a security clearance, are in the public sector, or are related to financial services. (Introduced in February, the bill has been languishing in the House Financial Services Committee.)

Beyond that, a number of employers abandoned the practice. By 2012 the ratio of businesses checking job applicants’ credit histories dropped to 47%, the human resource society found.

But if a prospective employer is looking at your credit report, how do you deal with it? What if they see something bad? What to do? First, don’t panic. Next, consider these tips:

1. Check Your Report Before They Do

Don’t be the last to know what’s on your credit report. You can use a free tool like Credit.com’s free Credit Report Card, for a clear overview of the information in your credit report. If something seems amiss, you can do a deeper dive. You’re entitled to obtain a free credit report from each of the major credit bureaus every year. Check them like you’re checking your kids for ticks after a day in the woods.

2. Act Quickly to Correct Any Mistakes

If you find incorrect or inaccurate information, under the Fair Credit Reporting Act you have the right to notify the credit bureaus and ask that it be corrected or deleted.

3. Flag It

If your report has negative but accurate information, and there are extenuating circumstances like a layoff, an illness, a death, failure of an ex-spouse to make a timely payment on a joint account, or a one-time lapse, you have the right to contact the credit bureau and attach a 100-word explanation. While it won’t erase the black mark, it may help potential employers see your credit in a better light.

4. Say Yes

After you’ve done your due diligence, corrected errors and developed a compelling explanation of what went wrong in cases where the negative information is accurate, put yourself out there. Companies must obtain your written consent before pulling your credit history. While they are barred from seeing your credit score, they will see everything else: Delinquencies, outstanding debt-related court judgments, debts currently in collection, high credit utilization rates and bankruptcies (even though Section 525 (b) of the bankruptcy code forbids employers from discriminating against people with bankruptcies on their records).

While you may fear rejection if prospective employers review your credit history, unless you live in one of the nine states mentioned above and are in an exempt category, you have a greater shot of being shown the door if you refuse them access. In the minds of HR professionals, refusal telegraphs problems. Better to consent and be prepared to show them your very nice pants.

5. Anticipate the Objection

If there are issues on your credit report, don’t wait for the interviewer to raise them. Take the initiative. Bring up the problems, explain what you’ve done to rectify the issues, then redirect the conversation back to your qualifications for the job. In the human resource survey, 87% of organizations said they sometimes allow job candidates to explain negative credit information.

6. Relax… But Not Too Much

Even if your credit report contains some negatives, you’re not necessarily out of the running. Only 10% of employers told the human resource society that a clean credit history was the most important variable in deciding whether to hire someone, and 80% of companies did hire people with damaging information on their credit reports. But if you have credit issues, don’t try to gloss over them by using lame excuses like “Oh, everybody has a few late payments these days.” Employers want workers who take responsibility. Own your credit history. Passing the buck doesn’t work.

7. If All Else Fails, Ask to Know Why

If an employer is considering not hiring you because of negative information on your credit report, you have the right to see the report before they make their decision. This is a legal and free way to check your credit report more than once a year. Even if you are not able to convince the prospective employer that your credit is not reason enough to reject you, you can come away from the process knowing what information they saw, giving you a better shot at the next job. Also, most employers check only one major credit bureau report, not all three. Assuming you check your credit before they do, you may know that the report they pulled contains an error. Provide credit reports from the other two agencies and ask them to reconsider your application.

When required and appropriate, having your credit report pulled in connection with a job application doesn’t have to be a harrowing experience. While the hiring process is daunting, as the personal manager of your credit portfolio, you are in the best position to make it an asset rather than a liability. Know where you stand before you go, and always dress your credit for success.

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