Credit Score


How bad credit can jeopardize your job

You think because you won’t be applying for credit in the short-run –you already have a mortgage and won’t be replacing your car in the near future- you can stop worrying about your credit report? Think again. The state of your credit report can affect anything from how much you pay for your homeowner and auto insurance to the interest rate on your credit card balance. Most importantly, a poor credit report may cost you your job -if you’re employed-, or bring your job search to a screeching halt.

I’m assuming that by now you know all the basics about credit reports and credit scores, and the impact that these can have on your financial life. If you don’t, I strongly suggest that you stop reading this article and get up to date as soon as possible. The best place to start is Pulliam Weston’s book Your Credit Score, Your Money & What’s at Stake.

If you’re already familiar with the essentials, it’s time to pay attention to a crucial fact about credit that isn’t covered by most basic texts and websites: Employers have been checking credit reports from current and prospective employees for a long time, and they can use their findings to rank workers when the time comes to hire new employees or dismiss some of the existing ones. In the midst of the current financial crisis, these credit checks become even more significant for two reasons:

  • Companies all over the country are struggling, and some of them have no option but to lay off workers in order to decrease costs. The state of a worker’s credit report may tip the balance in the decision of whom to keep and whom to let go.

  • As a consequence of the mass layoffs we’re currently experiencing, many people will face long periods of unemployment that may leave them unable to pay their bills on time. This will tarnish their credit reports, which in turn may cost them future employment opportunities.

The number of employers running credit checks is on the rise, with up to 50% routinely asking job applicants for permission to pull their credit report. Workers have started denouncing the practice on the grounds that credit isn’t a good predictor of achievement in the workplace. Tiffany Hsu writes in the Los Angeles Times that even the experts agree that “there’s no clear link between credit history and job performance”, especially when bad credit is a result of unforeseeable circumstances such as unexpected medical costs or divorce.

Employers, however, are not willing to take a chance. In their view, a person who is able to handle credit responsibly is more likely to show this responsibility and adherence to rules on the job. This should make keeping a clean credit record your top priority if you’re unemployed or at risk of losing your job. And even more so if you’re applying for positions that involve handling valuables or classified information –banks, jewelry shop owners or the Government are more likely to inquire about your credit history.

So what should you do if you’re looking for a job or worried you may be laid off? If you’re in this position, you should take extra steps to ensure you do all of the following:

  1. pay your bills in time,

  2. reduce your credit card balances, and

  3. stay well below your credit card limit.

But what if your credit is already in poor shape? In this case it’s even more essential that you follow these steps. If you keep adding positive information to your credit report for a sustained period of time, it will be easier to convince employers to disregard previous unpaid accounts as short-lived troubles that now belong in the past.

The main point to remember is that whatever the state of your credit report, you can start working today to make it better. But you have to take action: put in place the three steps above and in a short time you’ll begin to accumulate the sort of positive credit events that can make a difference in your working life.

TALKBACK

  • Have you ever been asked by an employer for permission to check your credit report?

  • Do you think you may have been denied a job because of your credit history?

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Your Credit Score, Your Money & What’s at Stake

How to Improve the 3-Digit Number that Shapes Your Financial Future

On the road to $1M rating:

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Written in the direct, no-nonsense style characteristic of Liz Pulliam Weston, this comprehensive guide to credit scores is a must-read for everybody, independently of their financial health.

Those who have a bad credit score will learn how this affects their chances of getting credit, and how to start working towards improving it.

Those in financial trouble will find out if they can avoid damaging their credit score, or whether their situation is so critical that a bankruptcy filing has become their best option. Even in that is the case, this book will teach you what to expect during the bankruptcy process, and how and for how long it can affect your financial life.

People who have no or little credit history will learn about the importance of building a credit record. The author dispels a few common myths, such as the beliefs that you don’t have to use credit score; or that your credit score is not important if you don’t need to apply for credit in the near future.

And the most important feature of this book is that even people with good or great credit will benefit from reading it, since it will teach them how their scores are computed and what to do to make sure they stay that way.

The main lesson from Your Credit Score is that your credit scores shape your financial outlook and can determine not only whether or not you are approved for a car or personal loan, mortgage or credit card, but also many other things such as:

  • how much interest you pay on your credit card
  • your credit card limits
  • your insurance premiums
  • whether you’ll get financing for a business
  • whether a prospective landlord will accept you as a tennant
  • whether you’ll the best deal for your cell phone contract

And the list gets larger. Apparently, even some hospitals have started checking credit scores before a patient is admitted.

The book starts with a comparison of two fictional women who go through life making similar financial decisions. They buy the same houses and cars and carry the same balances in their credit cards. The only difference between them is their credit scores. And what a big difference that is! According to Weston’s calculations, in the course of their lifetimes the woman with the higher credit score would have saved $2 million in interest (on the car loans, mortgage and credit cards) with respect to the one with the lower credit score.

Exaggerated? Maybe, but having read Weston’s book I’m convinced that it’s not worthwhile to take a chance. Protecting my credit score has become one of my financial priorities. The book showed me a number of ways in which my credit score could be harmed that I didn’t know about.

I’ll recommend this book to anybody interested in managing their own finances, but even more so to those who are interested in having their money work for them. Keeping an eye on your credit score can save you money. David Bach puts it best on the back cover: “A great credit score can help you finish rich!”.