Lending Club Blog

Lower Credit, Lower Job Prospects

With unemployment on the rise, one discriminating factor of the hiring process is under increased scrutiny: checking the credit of prospective applicants. Some states are considering restrictions to this process, which they believe may violate applicants’ civil rights.

USA Today reports that “About 43% of U.S. employers check job applicants for overdue payments on anything from mortgages and rent to credit cards and student loans, according to the Society for Human Resource Management and security consultant Kroll. That’s up from 36% in 2004, a Kroll survey found.”

You can imagine how the current rules create a cycle of trouble: A worker is laid off and finds himself unable to keep up with his mortgage payments. His credit score declines due to the delinquency. Prospective employers, who screen applicants by credit, are less likely to hire him, he falls further behind on his mortgage, and his credit declines even more.

One way to avoid this situation is to build an emergency fund while you are working. By saving up six months’ worth of expenses, you’d give yourself at least that long to find another job before your credit started to suffer from lack of income. With unemployment so high, saving even more might make sense, since finding a new job is likely to take somewhat longer.

There are certainly cases where a credit check is a viable part of the application and hiring process. You wouldn’t want workers with credit trouble to handle information sensitive to national security, for example. That situation could make the worker more willing to disclose information for the right price. Most jobs, however, have little risk associated with a lower credit rating. In fact, many people think that a lower credit score will actually inspire harder work and more loyal employees, who need the job much more.

Our credit impacts more aspects of our lives than just the rates we can expect when applying for a loan. Maintaining good credit, or improving bad credit, will have many positive effects. It may even make the difference when you’re looking for your next job.

Should companies consider your credit during the hiring process?

Wednesday, March 25th, 2009 at 9:04 am

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