How Bad Credit Can Hurt Your Job ProspectsPosted on December 2, 2009

You finally got an interview for the jobs of your dreams. Your background and experience are perfect and your references are impeccable. You hope for an offer soon. Then the hiring manager says they just need to do one more thing: run a credit check. Oh no!

Depending on the kind of position you’re looking for, a high credit-card balance and a few late payments — which may have happened because you’ve been out of work — now threaten your chances of receiving a job offer.

Many employers run credit checks on job candidates. Most often credit checks are due diligence on potential employees who have some contact with money, from bank teller to CFO.

One could also conclude that some companies use pre-employment credit screening as a way to gauge a worker’s judgment and character, regardless of job duties. This helps ensure that the company will hire only the “highest quality individuals.”

Even if you won’t be handling money directly or indirectly, assume a potential employer will check your credit.

Here are some tips:

Know what you’re signing. Sometimes you may unknowingly sign an agreement authorizing a credit check because it gets lost in a stack of documents that’s dumped in front of you in a pre-employment interview. If you don’t know what you’re expected to sign, ask. And don’t be afraid to ask why the credit check may be relevant to the job.

Don’t be surprised. It’s important to know what employers might be looking at. A company may query any one of the credit reporting bureaus — Experian, Equifax, and TransUnion — so it’s important for you to check them all as well. But don’t be fooled by highly advertised “free” credit report services; often they’re not free at all.

Fix errors. The U.S. Public Interest Research Group found that as many as 80% of credit reports contain errors, and one quarter of the time the flubs were serious enough to result in people being denied favorable interest rates, and in some cases, jobs. If you find errors, it’s up to you to contact the credit reporting company and document the correct information. Understand that changes to your credit reports can take 30 days or more to show up, so plan ahead.

Be honest. As you would with gaps in your resume, be upfront and proactive about explaining dings to your credit.

Develop a Long-Term Plan

Keeping your credit score high can help ease your mind when you’re looking for a job. How do you ensure your credit report is (nearly) spotless?

* Pay on time and don’t use most of your available credit. These are the two areas employers would care about most, because they speak to your ability to manage money and be responsible.

* Check your credit limits. Companies are lowering credit limits on even their best customers. If you thought you had an available line of $10,000 and a balance of $4,900, and suddenly your credit line is lowered to $5,000, your credit report will now say you’re maxed out. If that happens, pay down the balance as quickly as possible.

* Don’t cut up credit cards. Unused credit can quickly go into “hibernation,” meaning the lender has no activity to report to the credit bureaus, not even positive news about your credit use.

* Don’t close your oldest accounts. Having an account that goes back many years helps your credit longevity as well as your debt-to-available-credit ratio.