Will Bad Credit Keep You from Getting Hired?

Last Updated Apr 12, 2011 1:12 PM EDT

Should a prospective employer be able to check your credit report and use it to determine your qualification for a job? That's the latest debate in 25 states, where a total of 49 bills propose limiting when credit reports can be reviewed in the job hiring process, according to a story in USA Today.
Some legislators argue that judging an applicant based on his or her credit report is unfair - and in some cases, discriminatory. Advocates of the current system, however, say it's critical in some instances to review past credit activity, especially when considering applicants for highly sensitive positions, such as jobs within national security or the financial sector.

Earlier this year, Credit.com (where I am a contributor) polled 1,000 consumers and asked how people felt about the proposed bans. A majority - 53.5% - opposed the use of such employment credit checks.

Until all this gets resolved, what can someone with a less-than-stellar credit report do to reduce the chances of getting rejected? Here are three tips.

1. Review Your Credit Report
Before applying for any job, make sure that you've reviewed your credit report first. Search for any inaccuracies or false information: A 2004 survey by U.S Public Research Interest Group found that 80% of reports contained some kind of error, with 25% having "serious" errors. You can download a free copy of your credit report from all three major credit reporting agencies once every 12 months at annualcreditreport.com. If you find mistakes, write a letter to the credit reporting agency.

Explain why you disagree with the information and request that it be taken off the report or corrected. According to the FTC, it's also smart to Include copies of documents that support your claim. Send your letter by certified mail, "return receipt requested," so you can keep a log of what the credit reporting agency received, and keep copies of your dispute letter and enclosures. Credit bureaus are typically required to investigate within 30 days.

2. Be Upfront with the Employer
If you have a feeling your credit report is going to make you lose points with a prospective employer, be honest about your past. This way the employer can review your credit history with some perspective and context, rather than just assume you're a financial train wreck. If you ran into financial trouble due to a medical illness, a job loss or divorce, say so. If you had perfect credit up until the housing crash and everyone on your block filed a foreclosure, including you, don't be embarrassed to mention that. After all, some financial circumstances are not in our hands; if that's true in your case, it's in your best interest to disclose that with the employer as soon as possible. Hopefully you'll regain some lost points for honesty.

Start off the conversation by saying, "I understand you will review my credit history, so I just want to give you some background on a couple of recent setbacks." One of the main reasons employers check your credit history is to gauge your responsibility with money.

3. Show How You're Taking Action
As you disclose financial setbacks to a prospective employer, also explain what you're doing to get back on your feet. Are you working with a credit counselor? Have you settled some of your debts? Are you applying for a loan modification so you can better afford your mortgage? Are you waiting for a settlement in your divorce, which will enable you to pay down debt? Describe how you're actively working to repair your financial life. Show supporting documents, as well, or get a letter from your loan officer or credit counselor to vouch for your progress.

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    Farnoosh Torabi is a personal finance journalist and commentator. She is the author of the new book Psych Yourself Rich, Get the Mindset and Discipline You Need to Build Your Financial Life. Follow her at www.farnoosh.tv and on Twitter at @farnoosh.

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