How Your Credit Score May Impact Your Career

In general, your personal credit score is not directly tied to your career performance or qualifications. However, did you know there are some situations where your credit history may indirectly impact your professional life?

With nearly 30% of Americans suffering from terrible credit, it’s hard for many people to get out of the credit hole they’ve gotten into.

Once you have bad credit, the other financial elements of your life become a struggle, and before you know it, your credit score is preventing you from getting a loan to buy essentials like a car or house!

Are you applying for jobs and missing out? Employers do not have to tell you why you missed out on a role, including if it is the reason for your credit score rating.

This article examines why everyone should aim for a near-perfect credit score before they need it.

Credit Score and Your Career

We mentioned earlier that employers can choose what they disclose regarding a role or job application rejection, so you may end up applying for many roles without realizing the elephant in the room is your credit score.

Limited disclosure

Employers can use limited disclosure to avoid sharing the reasons for rejecting you for a role.

Employers can use broad-stroke reasons like ‘you didn’t meet the qualifications’ instead of telling you why you missed out. This answer is unhelpful, as as an applicant, you are likely to make the same error repeatedly and continue to miss out on suitable roles.

Fair Credit Reporting Act (FCRA)

However, when employers want to do a credit check, the Fair Credit Reporting Act (FCRA) requires them to seek your permission and get it in writing. Additionally, you may not have known that you can review the report they get. Insist on seeing the credit report and getting professional advice on improving it.

Credit report

If your credit report is not between 740 and 850, chances are you can improve it.

State Laws

Some states have laws that restrict credit score use in employment decisions. Currently, there are eleven states. Is your state included? California, Hawaii, Washington, Connecticut, Nevada, Colorado, Delaware, Maryland, Oregon, Vermont, and Illinois.

Why Employers Need Credit Reports

We’ve mentioned job applications where employment background checks can include reviewing your credit history. Industries with financial responsibility, such as accounting, finance, and roles involving handling company finances, commonly seek a credit report as part of applicant background checks.

Financial Roles

Most roles involve financial management or fiduciary responsibility and will likely require an excellent personal credit score.

Examples of roles in financial services may include bank tellers, loan officers, investment advisors, and anyone handling clients’ money.

Individuals applying for fiduciary roles, such as lawyers, trustees, and corporate board members, may also be required to authorize a credit check.

Security

Additionally, security is another sector, and any role that requires security clearance might require a detailed look at your financial history and credit score. People with high levels of debt are seen as risky as they might be susceptible to bribery or fraud due to economic pressures.

Five Actions That Can Harm A Credit Rating

1. Closing an account at the wrong time

While this action seems a bit ridiculous, you must decide when to close an account used for a loan.

Closing your account too soon after you’ve paid off the balance can harm your loan accounts, such as credit cards. You may have paid off the loan on one account by transferring the balance to another and then promptly closed the nil balance account. While this is a logical step to take, the timing of the account closure can harm your credit rating.

2. Transferring your balances over to one card

We’ve all heard of debt consolidation, and it’s not only a convenient solution. You also benefit from a better interest rate, so you’re paying less on the loan amount over time.

Many lenders, including the big banks, advertise this strategy to reduce debt; however, if you still need to borrow funds now that all your debt is loaded onto one card, you can appear as a high-risk borrower, which impacts your credit rating.

For your credit rating, did you know you’re better off spreading your borrowing over a few credit cards, so each card has a maximum of 30% owed than it is to have one card up with a high credit limit and you’re using most of it? Therefore, debt consolidation may not be excellent if you rely on your current credit score.

3. Keeping charge-offs on your credit report

A charge-off is a debt the creditor deems unlikely to pay off because you have failed to meet your monthly payments for a significant period.

The account is listed on your credit report as not collectible, where it will remain for seven years, potentially impacting your credit. However, you can sometimes remove your charge-offs before the seven years are up.

4. Falling behind on medical bills

You might not realize that if you’ve had a medical bill sitting waiting to be paid for some time, it will ultimately be sent to a debt collection agency to deal with. That can harm your credit, so try to make medical bills your priority if you have a habit of falling behind on payments.

5. Never use your credit card

Never needing a credit card should be a sign all is going really well with you financially. However, you must use credit and have a reasonable payment history to get a high credit score. Use your credit card and pay the balance every month. You now have a payment history and zero debt.

Final Thoughts

Understanding why your credit score is important is connected to what kind of financial future you want to have, which starts with your career.

For example, earning a good income, starting or investing in a business, and meeting personal needs like renting or owning a home all require a good credit score. Conversely, ignoring or being oblivious to the importance of your credit score could result in you not reaching your full potential.

If you are worried that your credit score might hurt your career prospects, you can take specific measures to improve it. These include improving your credit utilization ratio, making timely payments on bills, paying off any outstanding debts, and rectifying any errors on your credit report.

Moreover, it is recommended that you stay updated about the laws and regulations in your region regarding using credit information in employment decisions. This will help you better understand your rights and make informed decisions.