Credit Scores and Jobs: Reality Check for Job Hunters

(MoneyWatch) 

The almighty credit score. It determines your interest rates, insurance premiums, and an employer's decision to offer you a job? Is this scary statement really true? Credit expert John Ulzheimer walks you through what employers can and cannot do when it comes to your credit.

To start out, it’s important to clearly define a couple of credit-related terms.

• Credit file: A credit file is a collection of information housed at one or more of the credit reporting agencies. This information is generally made up ofthird-party collections, some public records, identification information, inquiries, and your accounts. When it is requested, by a lender for example, it is delivered in the form of a credit report.
• Credit score: A credit score is the distillation of much of the information in your credit report to a three-digit number, which is designed to predict whether or not you’ll go 90 days past due on any credit obligation in the next 24 months. The most commonly used credit score is the FICO score. Scores are not a permanent part of your credit file and they do not persist in the credit bureau’s databases. They are calculated on a one-off basis, delivered, and then forgotten. Credit scores are sold as ancillary products along with credit reports, kind of like buying floor mats with a car.

Now that we’ve gotten that straight, we’ll move on.

According to section 604 of the Fair Credit Reporting Act it is perfectly legal for any of the credit reporting agencies to furnish a credit report for the purposes of employment screening.Some states have made it illegal, but it’s still perfectly legal in most states thanks to federal law.Your overt permission must be given in order for a prospective employer (or current employer) to access your credit report, which is different from a lender pulling your credit report, where no overt permission is required.

The credit reporting agencies, the root source of credit reports for employment screening, do not provide the same type of credit report to employers as they provide to lenders, insurance companies, landlords or utility providers.It is a specifically designed version only for use by employers or employee screening companies.This is important because credit scores are not provided with those employment specific reports.

Yet the terms credit report and credit score are often used interchangeably, and many people have come to believe that they are the same thing.And because of that, many people believe that credit scores play some role in whether or not you will get or keep a job.This, of course, is not true — it is only the credit reportthat might play that role, and only with your permission.

Greg Fisher from CreditScoring.com created a video collage of media outlets, a mistaken Equifax executive and even a FICO advertisement, all claiming that employers use scores:

This all contributes to a myth that just won’t die.

Yet all of the credit reporting agencies have gone on record time and time again stating that they do not provide credit scores to employers. And the Consumer Data Industry Association (CDIA), the trade organization of the credit reporting agencies, has done the same. According to Stuart Pratt, president of the CDIA: “None of the credit reporting agencies sell credit scores to employers, so credit scores don’t influence any sort of employment decision.”

Kristine Snyder, public relations manager at Experian, sent me a list of what is not delivered to employers. “Credit score” is on that list.

So for those of you who believe, suspect or insist that a bad credit score will cost you a job, take comfort: That simply is not true.

John Ulzheimer is the president of consumer educationof Credit.com and the author of the book “You’re Nothing But A Number.” He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO and Equifax, John is the only recognized credit expert who actually comes from the credit industry. He has served as a credit expert witness in more than 60 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.

More on Mint.com and Credit.com:

• Where’s the Money in America
• Who Owns the U.S. Debt
• Free Credit Scores for Consumers?
• The Grass Isn’t Greener on the Other Side of the CARD Act