This is part 2 in a series on how credit scores can impact more than your ability to get a loan. You can find part one, which covers insurance, here.

Employment | Your Credit Score Affects a Lot More Than Credit

Clients often seek our help with their consumer debt issues.  We help clients with debt related to credit cards, medical bills, foreclosures, garnishments, or repossessions.  Often times we find that their best solution is to file for bankruptcy.  After this determination, the next question is usually, “how will this affect my credit score?” or “will I still be able to get a loan?.”  The short answer is, it depends and yes.

Many of these clients are aware that their credit score impacts the ability to get a loan or credit card.  However, most people do not know that credit scores also impact other areas of their life.  Over the next few blogs I will examine how your credit score affects insurance, renting, employment, and even utilities.

Today we will look at the impact of your credit score on current employment and potential employment.  We will also examine how bankruptcy may affect your employment.  In general, your credit score is rarely used to disqualify job seekers for most positions.  However, some companies run credit reports for candidates who would have access to the company’s finances.

Can an employer check my credit report?

No.  An employer cannot check your credit report unless you consent to it.  The Fair Credit Reporting Act sets limitations on who can access your credit information without your consent.

If you do consent to allowing the employer to run a credit report and the employer decides not to hire you based upon the report, it must provide you a copy of the report for you to review yourself before denying you the job.  This gives people a chance to address their credit report and make sure there are no errors.

How will bankruptcy affect my job search?

The impact bankruptcy has on your job search may depend on whether you are applying for a job at a private company or with the government.  If you are applying for a federal, state, or local government job then your bankruptcy will not be taken into consideration when determining whether or not to hire you.

Private employers are different.  There is no law prohibiting private employers from taking into account your bankruptcy when going through the application process before offering you employment.  However, like we said above, the company will still need your consent to run a credit report.

Many experts believe that due to the recent economic downturn, most employers are more understanding of blotches on credit reports.  Employers are aware that job loss and layoffs could lead to poor credit scores.  Take the initiative to explain what led to your poor credit score or bankruptcy.  More likely than not, the interviewer knows someone in a similar situation.

Can I get fired for filing bankruptcy?

No.  The fact that you filed for bankruptcy does not give your employer the right to fire you.  It does not matter if your employer is in the private sector or the public section.  Nor is the employer allowed to reduce your pay, take away any responsibilities or demote you.

The majority of the time your boss will not know that you filed bankruptcy.  However, in the case of a Chapter 13 it may be notified as the court requires automatic payments deducted from your paycheck.

Filing bankruptcy may actually help you in some instances.  On numerous occasions clients have come in at the request of their public or private employer.  Governmental agencies and private companies that contract with the government have recommended some of their employees file for bankruptcy in order to retain their security clearance or receive a higher security clearance.  The reason being is that a person with a lot of debt is more likely to be blackmailed.  By wiping out the debt in bankruptcy, the risk of blackmail is lowered significantly.

However, if your employment is terminated shortly after your employer is notified of the bankruptcy, you might have a case against the employer for discrimination.

How can I increase my credit score?

There are a number of factors which will influence your credit score.  Some of those factors include: payment history, debts owed, length of credit history, new accounts, and balance of accounts.

One of the most important factors in your credit score is the amount of debt you owe.  This includes the number of debt accounts you currently have, the types of accounts (credit card, installment, collection, etc.), and their balances. It is best to have a few credit cards and open credit accounts with low balances.  In general, using only 30% of the available credit improves your credit score.

Another factor in your credit score is your payment history.  A long record of on-time payments demonstrates an individual who has been reliable for a significant period of time.  It’s vital to your credit score to always pay your bills on time.

Another factor is the length of credit history.  The longer your credit history with a certain account, the better.  These long payment histories can be for houses, vehicles or even credit cards.

Bottom Line on Employment

Even though employers are less likely to look at your credit score as opposed to the past, you should work to improve it just in case they do.  And, be aware of what employers can and cannot do regarding employment and bankruptcy.

Come back next Wednesday to read about how landlords look at credit scores when renting to tenants.