How Your Credit Can Impact Your EmploymentSeveral weeks ago, the federal government implemented new rules regarding security clearances for federal employees, including servicemembers. While previously federal employees would undergo an initial credit check and follow-up checks every five to 10 years to get and maintain their clearances, now the Department of Defense will continuously monitor their credit for excessive debt, high debt-to-income ratio and failure to meet financial obligations. This means that a federal employee’s unpaid debts could threaten their government employment.

Your credit can affect your life in a variety of ways beyond just your finances, and that includes your job prospects. In a survey between the National Association of Professional Background Screeners and human resources website, 25% of employers reported using financial screenings during background checks in some circumstances, and 6% reported using them all the time. Even if you’re not a government worker, there’s a good chance a potential employer or your current boss may look at your credit history to help make their hiring and promotion decisions. To find out why your credit matters to employers, as well as what credit information employers have access to, continue below.

What bad credit can mean for employment

To a hiring manager, bad credit could be interpreted as a symptom of a number of negative traits, such as a failure to handle responsibilities, disorganization and a lack of self-control. For financial positions in particular, it’s also a sign that you might not be very good at your job, since someone who is good at managing a company’s money should theoretically also be good at managing their own finances as well. Additionally, it’s a potential source of trouble for an employee that could directly affect their work. If a job involves handling money, goods or sensitive information, issues with debt can present a risk that a prospective employee will be more likely to steal or abuse their position for financial gain. Also, if a debt goes into collections, that could result in the employee being constantly pestered by debt collection calls (though, according to the Fair Debt Collection Practices Act, if you tell a debt collector that they are not allowed to call you at work, the collection agency has to abide by that).

What can employers see?

The good news is that employers don’t have open access to the entirety of your credit reports. Instead, employers get a special report called an employment screening report from one or more of the three major credit bureaus. The screening report typically contains information such as your credit history and public record information, like liens and bankruptcies, but it specifically excludes your credit scores. Furthermore, the Fair Credit Reporting Act requires employers to take certain steps before they can even look at your screening report. An employer has to inform you in writing that it may use information from your consumer report for decisions related to employment, and it has to get your written permission to pull your reports. If you are rejected from a job, reassigned, fired, denied a promotion or receive adverse action from an employer due to information in your screening report, your employer has to notify you, give you a copy of the report it relied on to make the decision and give you a copy of your Fair Credit Reporting Act rights.

Beyond that, some states and cities have laws that further limit which employers can use credit checks and what information they can access. A handful of states, including Illinois, Oregon and Vermont, prohibit employers from making any decisions based on information they gather from looking at job applicant or employee credit reports, though there are often some exceptions to those laws for positions that involve handling large amounts of money or accessing payroll information. To learn your local and state laws regarding employment credit screening, you can contact your state’s department of labor.

What can you do to improve your credit history?

If you live in a state that allows employers to look at your credit history, check yours before you start applying for jobs or meet for your annual review to see what’s on it ahead of time. You can check your credit reports at each of the credit bureaus for free once every 12 months through the federally authorized website, and if you want to want to keep a constant eye on your reports, you can sign up for a credit monitoring service. When checking your reports, look for errors, such as accounts marked past due that you remember paying off, and signs of identity theft, like debts for credit cards you never opened. If you find either, call the appropriate credit bureau to report it, and if you think you’re a victim of identity theft, file a police report as well. It’s much easier to explain a problem with your credit reports when you’re aware of it ahead of time and you have a record of trying to fix it.

For the negative items on your credit reports that you are responsible for, unfortunately all you can do is strive to maintain good credit going forward and wait. Tarnishes on your reports typically stick around for seven years, and bankruptcies stay for up to 10, though on the bright side they become less significant as they get older. It’s easier for a hiring manager to ignore piles of debt from five years ago than it is for them to ignore piles of debt from five months ago.

A history of bad credit can be an obstacle to getting the job you want, but by keeping tabs on your credit, paying your bills on time and learning your local laws, it’s an obstacle you can overcome. For more articles on credit and how it affects your life, follow our credit monitoring blog.