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Why credit scores matter – can you be denied a job because of bad credit?

Employers consider many factors when they are considering applicants, which often include credit scores.

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A credit score is a three-digit number that indicates how likely you are to repay your debts. Banks and other financial institutions use credit scores to determine if you meet their criteria for a loan or a credit card. However, a credit score is used for more than financial matters; it may also be used to determine if you qualify for a job. 

What is a credit score?

A credit score is a three-digit number that represents your credit history. You might think of it as a grade that indicates how you’ve managed your financial obligations, including loans, credit cards, utility bills and even medical bills. 

The three-digit number is derived by calculating the information found on your credit reports. Your financial history, including how much debt you carry and how you manage it, is reported to the three main American credit bureaus: Experian, Equifax and TransUnion. The information on these reports is used by credit score models such as FICO and VantageScore to generate a number that reflects your credit history. 

A credit score usually ranges from 300 to 850. The number reflects your debt, including how much debt you’re carrying, how you’ve managed it and whether you’ve made timely payments. The higher your credit score, the better your credit. The ratings for credit scores are as follows: 

  • 300 – 579: Poor

  • 580 – 669: Fair

  • 670 – 739: Good

  • 740 – 799: Very good

  • 800 – 850: Excellent

As long as you make timely payments on your financial obligations, you should be able to maintain a healthy credit score. If you make late payments, miss payments, default on loans or have accounts that are no longer in good standing, your credit score will fall. 

How credit scores affect you financially

A credit score matters because it affects your eligibility for loans, credit cards and other financial matters. It can also impact the interest rates you pay on loans and credit cards as well as your insurance premiums. 

The higher your credit score, the more likely it is that you will be eligible to qualify for credit. Not only does a healthy credit score affect your ability to be approved for credit, but it also makes you eligible for more favorable conditions on your credit. Interest rates matter because they translate to lower payments. 

To illustrate how your credit score can impact your financial well-being, consider the following: 

  • An individual with a credit score between the 580 and 669 range (a “fair” rating) will pay approximately $65,000 more on a mortgage that is valued at $200,000 than an individual who has a credit score that falls between the 740 and 799 range (a “very good” rating).

  • Someone with a “fair” credit score would pay approximately $5,000 more on the life of a $30,000 car loan than someone who has a “very good” credit score. 

As you can see, a high credit score can save you thousands of dollars in interest because lenders and other financial institutions use credit scores to determine borrower liability. Those who have a higher credit score are less of a risk for lenders, as their credit history reflects that they are more likely to make timely payments. Those who have lower credit scores present a greater risk, as their credit history reflects that they are more likely to miss payments. Since lenders have more confidence that individuals with a high credit score will better manage their financial obligations, they are “rewarded” with lower interest rates. Lenders have less confidence in individuals who have lower credit scores, and to protect themselves, they charge a higher interest rate. 

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Credit scores affect more than finances

Your credit score has a major impact on your financial well-being — from interest rates, loans and credits to other aspects of life, like housing and employment. 

Housing

Landlords often consider the credit history of prospective tenants before they approve their leases. Just like financial institutions, property owners want to make sure that they are leasing to people who will pay their rent. If you have a healthy credit score, you’re more likely to pay your rent on time; however, if you have an unhealthy credit score, you have a higher likelihood of missing a payment. If your credit history is poor, it can affect your ability to rent an apartment, condo, townhouse or any other property. 

Employment

Employers often use credit scores to determine whether a prospective applicant would be an asset. If your credit score is low, it may decrease your chances of getting the job. 

Why employers look at credit scores

Employers consider many factors when they are considering applicants. Credit history can provide valuable information about a prospective employee:

  • A lengthy history of late payments indicates that you aren’t responsible with your finances and could reflect how responsible you will be at work. For example, your employer may assume that you may not fulfill your obligations. 

  • The extensive use of credit cards or an excessive amount of debt is a sign of financial hardship, which may indicate that there is a risk that you could commit fraud or theft. 

  • Inappropriate management of your finances may suggest that you will not manage company finances or sensitive information appropriately. 

Not all employers check the credit histories of potential hires. These checks are usually conducted for positions that would involve highly sensitive information, require security clearance or involve direct access to a company’s financials. However, there are some employers who do check the credit of all job applicants. 

How do you know if your credit will affect your employment status? 

Currently, 11 states ban employers from discriminating against applicants based on their credit. These states include: 

  • California

  • Colorado

  • Connecticut

  • Delaware

  • Hawaii

  • Illinois

  • Maryland

  • Nevada

  • Oregon

  • Vermont

  • Washington

If you are seeking employment in any of the remaining 39 states or the District of Columbia, an employer is permitted to deny your application based on your credit history. Additionally, in the 11 states where bans on credit history discrimination exist, there are exceptions. For example, if you are applying for a job at a financial institution in one of the 11 states, your credit history may prevent you from getting the job. 

In every state and for all positions, employers are required to let applicants know if their credit history will be checked. When a prospective employer intends to check your credit, they must get your written permission before doing so. You do have the right to refuse a credit check by an employer; however, you do risk not being hired for the job. 

What employers see when they check your credit

Employers do not see your entire credit history; instead, they see a modified version. Any information that could potentially violate equal and fair employment guidelines such as your marital status and your year of birth will be omitted from their version of the report. Additionally, your credit score and account numbers will not be displayed on the credit report your prospective employer will receive. 

The credit reports employers have access to will show: 

  • A record of your payment history

  • The amount of debt you owe

  • The amount available on lines of credit

Employment credit checks and your rights

You do have legal rights when it comes to credit checks for employment. A prospective employer must let you know that they intend to check your credit and obtain your written permission before initiating a check. According to the Fair Credit Reporting Act, your employer must give you clear, written advance notice.

In addition to receiving notification and granting permission to your prospective employer, you have other legal rights related to credit checks for employment. 

  • Rejection notice.

    If an employer decides to reject your application because of your credit history, they must notify you of the decision. The employer must send what is referred to as a “pre-adverse action notice.” You must be given a copy of the credit report that the employer used with the notice as well as a summary of your rights. 

  • Response period.

    Before proceeding with your rejection, an employer is legally required to wait a reasonable period of time after reviewing your credit history; typically three to five business days. During this time, you should be given the opportunity to explain anything on your credit report that concerned the employer. You can contact the credit reporting company to make the necessary corrections if there is any incorrect information on the credit report. 

  • Post-adverse action notice.

    Once the employer has acted on the decision, they are required to submit a post-adverse action notice. This notice must contain the name of the agency that issued the credit report as well as the contact information. Additionally, the notice must explain that you have the right to receive a free-of-charge copy of the credit report that was used within a 60-day period. 

How to improve your credit

If you are seeking employment, your credit history may be checked and your credit score may impact whether you are hired. Prior to applying for a position, it’s a good idea to speak to the prospective employer. You have a right to know if your credit will be checked. If your credit will be checked, take the time to make sure that it is accurate by following the steps below.

Check your credit score

Make sure to check your credit score before applying for a position. There are several resources that provide access to free credit reports. Credit Karma and Credit Sesame, for example, offer free Equifax and TransUnion credit reports and scores. You are also entitled to a free credit report once a year from Equifax, TransUnion and Experian. 

Take the time to inspect the reports. They may contain incorrect information that could bring down your score. For example, the report may indicate late payments that weren’t actually late, or it may feature a credit card that doesn’t belong to you. If there are any discrepancies, contact the credit company. Draft a written inquiry that highlights any disputes and provides documentation that supports your claims, such as copies of payments that have been processed to your accounts. Send the inquiry to the credit report company through certified mail. 

Work on fixing your credit

If your credit score isn’t where you want it to be, create a plan to fix it. Make sure you pay your bills on time and for the amount owed. Consider consolidating your debt to make it easier to manage your debt. Attend credit counseling programs where you can learn about how to get your finances in order. Avoid taking out new lines of credit or loans. 

Speak with your employer

If your score isn’t where you want it to be or what your prospective employer expects, don’t let it deter you from applying for a position. Remember that a credit score is only one of many factors taken into consideration during the hiring process. Having the right skills, ample experience and a proven track record of success may encourage a prospective employer to overlook a less-than-ideal score. 

How Nova Credit can help you establish credit

A credit score is important for anyone who resides in the U.S., permanent residents and non-residents, alike. While you can take the steps above to build your credit, you can also use Nova Credit to access financial products after arriving in the U.S. using your international credit history. 

Nova Credit creates a global Credit Passport that helps people bring their credit history with them when they move to the U.S. While your credit history won’t be transferred to national bureau databases, creditors and lenders can use your Credit Passport to evaluate your application for a loan, apartment and other services. 

Nova Credit currently connects to international credit bureaus in Australia, Brazil, Canada, India, Mexico, Nigeria, South Korea and the UK.

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