Still need one more reason to get out of debt? A poor credit score can cost you your next job.
It should be well known to you by now that credit reports aren’t just used by lenders looking to approve you for a new loan or credit card. A few late payments and collection accounts can prevent you from opening a bank account or renting an apartment. Now with so many applicants for every vacant position, employers are increasingly using credit scores to judge applicants during the hiring process.
According to a survey by the Society for Human Resource Management of more than 430 organizations in late 2009, 47% of employers say they check the credit history of applicants for certain positions, up from 42% of employers in 2006. This means that managing your credit and getting out of debt isn’t only important for your personal balance sheet, but your income statement as well.
Having bad credit can leave you shut out of the very employment opportunities you need to keep your head above the debt waters. This also means a catch-22 for many people whose careers went sideways as a result of the global economic malaise. They lost their job, fell behind in their bills, and no have blemishes on their credit reports that prevent them from securing the same high-paying jobs that they once took for granted. Employers are required to get your written permission to conduct a background check that includes your credit file, but don’t think that opting out can save you. Most employers won’t even consider applicants who decline consent.
Steps to Take Now
So what should you do? If you are actively in the job market it pays to get your recent credit report (check out Quizzle.com for a free report and score) and be able to speak to any negative notes in your file. Unfortunately, it’s unlikely that a prospective employer nowadays will even give you the opportunity to explain dings on your credit file, but you should be prepared to if it will help tip the scales in your favor. Most employers aren’t overly concerned with things like high credit card balances and such that lenders would be concerned with, but late payments, collections and bankruptcies are seen as huge red flags on your character, whether that’s fair or not.
This is just another reason why you need to build up an emergency fund, even while you’re working to pay down your debt. If you’re living paycheck to paycheck, just one or two months out of work can do irreparable harm to not only your credit history, but your job prospects as well. Work to have at least six months of income set aside in a 100% FDIC-insured account that will allow you to draw down on your savings to get over a short spell of unemployment.
Know that unemployment benefits won’t equal your on-the-job earnings, and credit cards aren’t ideal as a safety net (although they can do in a pinch.) As a result, having cash in the stash is vital in these days of uncertainty and poor prospects.
The Good News
While this is all very discouraging for all those who (often because of job loss) now have bad credit and find it hard to get a new job, there are some positive developments. Several state legislatures have introduced legislation to prohibit employers from using credit scores as a condition of employment. While not always successful, it does show that there are some in government who recognize this as a real issue for job seekers following this recession and at least some of them want to do something about it.