Credit reports can affect job prospects

Take care of that "emergency" credit card your parents gave you. It could impact your job prospects.

A 2010 study by the Society of Resource Management found that 9% of employers consider good credit reports to be a key factor when screening job applicants.

Employers can get this information from consumer reports. The Fair Credit Reporting Act (FCRA) requires employers to get an applicant’s permission before pulling this information. It also requires employers to notify applicants what part of the report, if any, barred the applicant from the desired position.

Currently, the FCRA allows employers to not hire applicants, or terminate or refuse to promote current employees, based on the report.

Vickie Hampton, the personal financial planning department chair at Texas Tech University, explained that employers see a strong credit report as a signal that an applicant is responsible.

“Research shows people who have financial problems of various kinds are distracted and less productive in the workplace,” Hampton said. “If you’re on the employer’s side, you’re taking into account a lot of different things when hiring.”

Hampton explained that companies look mostly at the FICO score on credit reports.

The FICO score is composed of three smaller scores, each corresponding to a different credit bureau: Experian, TransUnion and Equifax. And each of these scores, in turn, is based on the data the three bureaus keep on the credit-card holder.

However, not everyone agrees that companies should be allowed to view applicants’ credit scores. Some critics argue that credit scores have no bearing on an employee’s aptitude and that outside factors, such as being laid off or having a medical emergency, can also damage credit.

According to the National Conference of State Legislatures, seven states -- California, Connecticut, Hawaii, Illinois, Maryland, Oregon and Washington -- have restricted employers from using credit reports to screen applicants.

And as of September, 41 bills were pending in 19 states and the District of Columbia meant to restrict or ban the use of credit reports in screening job applicants.

Some students aren’t concerned about their credit reports costing them a job. Kevin Wang, 20, a University of Pennsylvania junior from Wayne, N.J., took a high school class on personal finance and understands what it takes to have a good credit score. He is already building credit.

Penn junior Kevin Ye, 20, of Knoxville, Tenn., is also not too concerned.

“I never thought about it but it makes sense [that employers would look],” he said. “It doesn’t concern me because as a student your credit shouldn’t be so bad that it would effect you.”

For those who are concerned, Hampton has a few suggestions. First, she recommends that students use credit. She said that students should get a credit card and use it. But she warns that opening too many credit cards can also harm credit. Only open one or two.

It’s also important that students don’t max out their credit limits. So if a student has a credit limit of $500, he or she shouldn’t spend more than that amount.

Lastly, she explained that companies look at applicants’ credit history.

“The most important part of the FICO score is payment history and the amount of money owed compared to the amount available,” she said.

However, she pointed out that students are generally too young to have a long history.

Laura Cofsky is a Fall 2012 Paste BN Collegiate Correspondent. Learn more about her here.

This story originally appeared on the Paste BN College blog, a news source produced for college students by student journalists. The blog closed in September of 2017.