What a Credit Check Can Tell a Potential Employer
Before hiring a candidate, many employers call for a credit check to be performed. Whether or not the position calls for handling money, an employer has several reasons for why they are performing the check. How you handle your personal finances can give employers a strong indication of how you might handle other responsibilities. So, let’s take a look at some of the information on a credit report and what employers can learn from it.
High Credit Utilization Rate
Credit utilization refers to the amount of revolving credit which you are using relative to the available balance. According to Experian, one of the three major credit reporting bureaus, this rate should not exceed 30%. Otherwise, because this factor accounts for almost a third of your overall score, it can greatly impact your credit rating.
However, what an employer can glean from your high usage of credit is that you may be in a little too deep financially. This could raise the likelihood of workplace theft or even embezzlement. At the very least, it may lead to a lot of financial stress, which might lower the quality of your work.
Simply being slightly late on payments won’t go on your credit report, but if you are more than 30 days late, it certainly can. This is a big deal both because payment history accounts for slightly more than a third of your credit score, and employers will certainly not be impressed either. A history of late payments indicates poor organization, bad money management, inability to comply with instructions, and poor attention to detail. If you have a history of late payments, it is a good idea to be upfront about the issue and explain why these payments were late, and reassure them that you have solved the problem.
Bankruptcy, Foreclosures, and Liens
Bankruptcy and foreclosure are both serious financial issues that will remain on your credit report for a long time, ten years for bankruptcy, and seven for foreclosure, to be exact. Liens for taxes will no longer appear; however, liens against property will. What these issues all have in common is that they signal current or former severe debts, which could indicate financial irresponsibility and, in the case of liens, ongoing high debt. The best thing to do is, to be honest about the issue, which shows integrity and assures your potential employer that your situation is more stable now.
New Credit Accounts
A new credit account may not be a big deal, but several in quick succession may be a red flag. This makes it look like you are desperate for money, and your potential employer may wonder why. Could it be caused by a lot of debt or a lack of impulse control? No matter what it is, it doesn’t sound great for a soon-to-be employee. If you are looking for new employment, try to keep your new credit accounts to a minimum to avoid looking like a financial liability.
If your future employment is likely to involve a credit check and quite a lot will, you’ll want to consider requesting a free report from one of the major credit bureaus so you can see for yourself what it holds and correct any errors? The same also goes for your background check, which nearly all employers will require. By getting this information in advance, you can correct any errors and prepare for any issues your future employer is likely to bring up.