These days, increasing numbers of companies want to see more than your resume and references — they also want to see your credit report. Although some states have passed legislation limiting the use of credit checks in the hiring process, the practice continues to become more common: According to the Society for Human Resources Management, 60 percent of employers run a credit check on at least some applicants, an increase from 42 percent in 2006.
While some job applicants view the request as too personal, recruiters, career coaches and financial experts say that there are good reasons behind this practice. Here are three reasons why your credit report can be important in a job search.
1. Cost to the company. “Employers often use credit checks because they understand that a person’s overall financial wellness, particularly credit, [has an] impact on the company’s bottom line,” says Denise Winston, a financial educator and founder of Money Start Here. For instance, financial problems can affect an employee’s immune system, requiring them to take more sick days than a financially healthy employee. Financial problems also affect employees’ relationships, and relationship problems can translate into a lack of productivity at work. Money issues also affect a worker’s focus, and unfocused employees can be a liability for the company in terms of more accidents, workers compensation or disability claims, extended breaks or excessive phone calls, Winston says.
2. Insight into applicant’s needs. “Credit reports provide great insight to a person’s level of responsibility, how much money they need to earn in order to support their debts, and their stability,” Winston says.
For instance, someone with bad credit can generate garnishment notices, child support orders, alimony payment orders, and the like, says Greg Szymanski, HR Director at real estate development firm Geonerco, Inc. “Processing, tracking and complying with these notices are burdensome for payroll departments, especially for smaller employers,” Szymanski says. “Additionally, once a worker with poor credit starts having his or her pay garnished, he or she may move on to another employer and wait for the whole process to catch up with him or her again. I’ve seen this happen.”
3. Industry-specific concerns. If you’re looking for a job that involves managing money or advising others about how to manage their money, you can bet that your own finances will be examined. “If a candidate cannot handle their own financial affairs successfully, then they should not be hired to handle others’ either,” says Caleb Brown, a partner at New Planner Recruiting, which helps financial planning firms hire new college grads and career changers who want to become financial planners. “A credit check is an integral part of our recruiting process and tells us a great deal about the financial behavior of the candidate. If the candidate has a low credit score or negative rating due to poor financial habits such as late pays and overspending, they will not be considered for the position. However, sometimes we encounter younger candidates who don’t have a well enough established credit file and their score might be low just simply due to their age. These individuals are not ruled out automatically.”
In addition to job applicants hoping to work in the financial field, other jobs that almost always require credit checks include Positions with the government or with government contractors for which security clearances are required, says Kevin Gallegos, vice president of Freedom Debt Relief in Tempe, Ariz.
If your credit report contains bad news, check back here on Friday, Oct. 22 for part two of this post: How To Deal with Credit Issues In a Job Interview.