Looking for a Job is Stressful Enough, What About My Credit Score?

From our Guest Expert Jen Lee.  

When you are looking for a new job, one of most the stressful things that can come up is how your debt and credit may affect your ability to get hired for a particular position. I often hear from clients that they are afraid that they will never get hired because of debt and credit problems.

This problem can depend somewhat on what state you are in. California has fairly strict laws on when a potential employer can check your credit or use your credit score in the hiring process. Generally, you have to be handling more than $10,000/day of company money, be a signer on a bank account, or have access to protected information like social security numbers in order for a potential employer to check your credit.

However, if a potential employer asks you if you have ever filed for bankruptcy, there is a good chance they are looking to see whether you are telling the truth or not…NOT that bankruptcy is a deal breaker. You should answer this question truthfully and possibly consider an explanation, either in writing or to the hiring manager.

While most are concerned about a bankruptcy affecting the hiring process, even more are concerned about a low credit score in general. Make sure you know what is in your credit report. There are often mistakes that can lower your score that can be fixed by sending in a dispute letter for the mistake. Annualcreditreport.com is free and allows you to get a copy of your credit report from each of the three bureaus (Equifax, Experian, and TransUnion) once a year. You can also use a service like CreditKarma.com to have access to scores that are updated weekly. Please note that Credit Karma scores can vary widely when compared to scores that a lender may pull for a mortgage or car loan, but can be good for getting an idea and watching the trend of your credit score over time.

Be informed of what things affect your credit score. Here is an approximate breakdown of what makes up your credit score:

As you can see, payment history is very important. Payment history is making on-time payments and not having any late payments on your report. If you miss a payment, that can drastically affect your score.

The second most important factor is credit utilization. When someone comes in with a low credit score, but all payments have been made on time, credit utilization is the primary culprit. Your score goes down with the more credit you use. For example, if your credit card has a $1,000 limit on it and your balance is over $300, your credit score will start dropping. We often see low credit scores because one or more cards have balances that are close to the card limits. Please note that this is per account, not across all of your accounts, which is a common misconception.

Finally, the other factors for your credit score make up about 35%, including applying for a lot of credit within a short time, not having a very long history of using credit, and collection accounts. Be informed and look at your credit report so that you know what is impacting your score and what you can do to maintain or increase it.

So, what do you do if you have debt or credit problems and are worried about the future? Find out what your options are and how to set yourself up for long-term success. The biggest mistake people make is not finding out what all of the options are and ignoring the problem until it becomes an emergency. Sometimes, doing nothing is the best strategy, but it is best to be informed about what that means for your future so that it doesn’t become an emergency later.

Jen Lee is a debt and credit strategy attorney. Owner of Jen Lee Law, Inc., her company helps individuals and businesses develop strategies to reduce financial stress, increase productivity, and understand legal rights and options. Learn more about Jen at www.jenleelaw.com.

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