How Do Employers Use Credit Reports?

Credit reports are critical to your financial life. Creditors use information in your credit report to determine whether you are a high or low credit risk. However, some employers also verify information in your credit report before extending employment offers. Rules vary per employer regarding whether a high or low credit score can eliminate you from the applicant pool.

Character

Employers in certain fields use your credit report to determine your character. According to ABC News, credit history is only one tool used to measure your judgment and character, but if you can't manage your financial obligations, an employer might wonder if it's a sign of irresponsibility. Unlike a credit score, your credit report gives specific information about how you handled your account, such as the amount owed on a charge account, how many times you have been late on your credit accounts and the number of times you changed addresses in the past few years.

When It Matters Most

Not all employers probe into your financial life before offering you a job. If you are applying to a high-security position or a job that requires handling cash, your credit report could be required. For example, if you are applying to become a bank teller, payroll manager or financial planner, good credit is required. Your credit report is the only method, outside of an interview, that offers information on how well you manage money.

Lawsuits and Wage Garnishment

The Consumer Credit Protection Act prevents an employer from firing you for a wage garnishment. However, when hunting for a new job, the presence of a judgment to garnish your wages raises a red flag for a prospective employer. Wage garnishments don't happen overnight. Only after consumers have avoided communication and payment negotiation with a creditor does the creditor file a judgment. An employer might assume that your propensity for allowing personal matters to impact your salary will be a distraction from your job duties.

Repealing the Use of Credit

There are many critics to the use of credit in hiring decisions. House Representative Steve Cohen and 26 other members of Congress are promoting the adoption of the Equal Employment for All Act, which is an amendment to the Fair Credit Act. The bill would prohibit the use of a job candidate's personal credit information to determine her qualification for a job. The bill would also prevent employers from firing or denying a promotion to an employee based on credit. As of 2011, the bill has not been signed into law. ABC News notes that there's no link between poor credit and job performance and that many people are simply caught in a cycle of losing income, falling behind on bills and being denied employment due to credit.