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Guest Blog By: Michael Klazema

One of the “hot topics” in human resources right now is the use of credit checks in background screenings. As a job seeker, it is very important that you understand how and why an employer would use a credit check to determine if you would be a good employee or not. Currently there are several states that are limiting the use of a credit check for a job, but in the majority of states, a credit report is fair game when it comes to choosing the perfect candidate.

The Law and What You Need to Know About It

Before we even get into why employers will use a credit check, it is important that you understand the laws that are in place. As a job seeker, you are protected by the FCRA or Fair Credit Reporting Act. This law, which is regulated by the Fair Trade Commission, sets out guidelines for employers who use credit reporting. This law states that, when it comes to credit reports, that the job seeker must sign off on a credit check, that they will be notified, in writing, if any information is found that has caused the potential employer to choose not to hire the candidate. On top of that, the job seeker is able to dispute the information with the background check company.

Credit Red Flags

When a credit report comes back to an employer, they will look for certain things that could be considered “red flags” as far as employees go. For instance, if they see a lien on your credit report, they could deduce that someone was irresponsible as they cannot manage their debts. Another common “red flag” that employers will notice is using most, if not all, of your credit. To many employers, this will be seen as you not being able to stick to a budget. Do you have a bankruptcy or foreclosure?  You may be seen as someone who is irresponsible and who will bail on projects when the going gets tough.

There are other red flags too. For instance, if a potential employer sees recent late fees, from 30 to 90 days ago, it may seem as if you have problems following a budget. Have you recently opened up new credit? This could also be seen as a red flag as your employer will see that you are possibly desperate for money and in over your head.

The best thing to do, if you have credit problems, is to let them know from the start and be honest about how you are taking care of it. You probably won’t have as much of a problem with your credit if you are doing something that is not financially based vs. something that is. For example, if you are applying for a job in a company warehouse, they probably won’t care much.  However, if you are working as a cashier or in some type of accounting work, your credit may be more important to your employer. Whatever you do, before applying for work, know the laws in your state concerning credit.

Michael Klazema has been developing products for pre-employment screening and improving online customer experiences in the background screening industry since 2009. He is the lead author and editor for a background checks blog and community. He lives in Dallas, TX with his family and enjoys the rich culinary histories of various old and new world countries.