Your credit report is one of the most important things you should know about when you become an adult in the US, whether you like it or not. Banks, potential employers and even landlords will do a credit check on you before they decide to grant you loans, give you a job or rent out the apartment to you.

Many employers in the US take a look at your credit report when you apply for a job and use that as a means to decide whether to hire you or not. If you have a bad credit history, you might be declined for a position at a new company.

Your credit report contains a lot of privy information about you, so it’s easy to understand why many Americans don’t like their potential employers or landlords to know so much about their financial credit history and situation. When you go for a job interview, you may be asked by the potential employer for your permission to check your credit report as it is illegal to check someone else’s credit without permission.

Having bad credit already means paying higher interest rates on credit cards, auto loans and mortgage loans; getting rejected for a job because of a damaging credit is worse than just bad.

Conducting Credit Checks – A Controversial Practice

Even though many employers are in favor of this controversial practice, I personally dislike it.

Many employers say that credit checks say a lot about someone. From my point of view, credit checks tell a flawed or limited story. Many people’s credit history are damaged because of medical bills, emergencies, a few late payments or other factors beyond their control.

Another reason cited by employers who use credit checks as a hiring filter is that by looking at a potential employee’s credit, it’s easier to know who would be more likely to commit fraud or behave irresponsibly at their workplace.

Carla Morelli, founder of FreyerMartin, a personal bill-paying service company, told me that credit checks were a critical part of the company’s screening process. She said, “Having their checkbooks, identities and credit scores in our hands meant we could only hire the best. Anything less was an accident waiting to happen.”

She said the credit checks serve two main purposes: as an indicator of personal responsibility and as an indicator of “bribability”. Her company would pull a credit report for candidates they planned on making an offer to, then again randomly every 12-14 months for any employee who walked through the door – including the receptionist.

Is It Even Lawful?

On Sept. 23 this year, the House Financial Services Committee held a hearing to discuss the Equal Employment for All Act, a bill that would make it unlawful, with certain limited exceptions, to base adverse-employment decisions against prospective and current employees on consumer credit reports.

Some US states have already passed laws that eliminate the use of credit checks as part of the hiring process. Illinois and Oregon, for example, have passed laws that prohibit employers in those states from using credit reports as a factor in hiring, firing, demoting or suspending employees.

Elizabeth Cohee, an Attorney at Law from Oakland, California, thinks that employers should really consider whether credit checks are necessary in the first place. She said, “If the position does not entail fiduciary or financial duties, why bother with the cost and the possible invasion of privacy claims?”

Be Prepared For It

Before you apply for a job, it’s best that you do your own check on your credit report beforehand. Since it takes time for your credit file to be updated, you might want to take steps towards improving your credit by paying your credit card bills on time months before you apply for a job.

But what if you have a patchy credit history? Elizabeth Cohee recommends that if you believe that an adverse report will affect your employment prospects, you should try to offset that part of the application with some great recommendations.

From my personal experience, people who commit fraud aren’t exclusively those with bad credit, but in many cases fraud is committed by people with some of the best credit around. I don’t think Wall Street fraudster Bernie Madoff had a bad credit history!

Check Your Credit Report And Credit Score

To find out more about credit scores and credit reports, read our Credit Report guide on tips on where and how you can obtain your free credit report and score.

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