One of the reasons I love teaching is the stories I hear in class. When I was speaking in a personal finance class at the Ohio State University a scenario came up that I have heard all too often. A student had applied for an internship for the summer. The hiring manager said he was the top candidate. There were just formalities including a background check before an offer could be made. The student signed an authorization form allowing the employer to pull a credit report on him. Within a few days the hiring manager called telling the student that the position was filled by a different candidate.
Now that we were in class discussing employers looking at credit reports of job candidates, he started putting two and two together. The student checked his credit report for the class. Finding a medical collection for $168. Did he owe the money? Yes. Was it his responsibility to pay it? Yes. Should he have checked his credit report before applying for a job? Absolutely!
Surveys by the Society of Human Resource Management show up to 60% of employers conduct credit checks of potential employees.
Not all job candidates go through a credit check, of those organizations surveyed:
- 13% do credit checks on all employees
- 47% surveyed conduct credit checks on specific positions.
- 91% do credit checks for positions in a financial or fiduciary responsibility
- 46% of the time senior executive positions are checked
- 34% of the time positions with access to highly confidential information are checked
Medical debt is generally not considered during the hiring process according to the poll, but medical collections are open to scrutiny. A foreclosure is only part of the hiring decision in 11% of those surveyed.
87% of those surveyed allow job candidates the opportunity to explain the results of the credit report, depending on the circumstances.
57% initiate a credit report after making a contingent offer, 30% perform the credit check after the interview.
Employers may be considering many things, such as the likelihood to be more tempted to steal based on delinquent accounts or a high debt-to-income ratio based on the debt present on the credit report.
Other considerations:
- On the job errors
- Longer lunch breaks to take care of personal problems
- Requesting paycheck advances
- Attempting to borrow money from co-workers
- Frequent personal phone calls or incoming collection calls
- Absenteeism, attitude, enthusiasm, etc.
How employers gauge the credit issues in terms of a hiring decision:
- Outstanding judgments 64%
- Collection accounts 49%
- Bankruptcy 25%
- High debt-to-income 18%
- Foreclosure 11%
- Medical debt 1%
My advice is to review your credit report to make sure it is correct. Have an explanation for anything derogatory focusing on:
- Why the derogatory event occurred
- Why the derogatory event was out of your control (job loss, medical issue, etc.)
- Why the derogatory event is out of character based on the big picture of your credit and is unlikely to happen again
You can find out more about credit and employment issues in my book The Credit Road Trip.
About the Author: Patrick Ritchie loves teaching about credit; he is the author of The Credit Road Trip and The Credit Road Map series of books. Check out his free online classes at www.CreditLiteracyProject.com.
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