Employers check potential employees' credit to gain some insight into their potential hire. A credit check will alert an employer to problems they may want to avoid. An applicant's credit history may indicate financial distress and late payment history which can indicate disorganization and irresponsibility. Using a lot of available credit may be viewed as an increased likelihood of fraud. Mishandling of your personal finances may indicate a poor fit for certain jobs especially those that involve company finances.
What is a Credit Score?
A credit score is a three-digit number that is assigned to you to represent your creditworthiness to lenders. Your credit score is a reflection of credit history. Some of the factors that go into a credit score are your payment history, credit utilization, number of accounts, and type of accounts.
The credit score has a huge impact on almost every area of your life including getting a job, buying a car, and renting an apartment. Your credit score often determines whether you will get approved for services. It can even factor into whether an employer wants to consider you for a job.
What is a FICO Score?
A FICO score is a type of credit score that indicates how likely a person is to pay their debts. The FICO score helps 90% of top lenders in the U.S. determine whether to loan money to a person. A FICO score is used to assess the risk, approvals, and interest rates when creating a loan.
The FICO score consists of five categories. There is a percentage assigned to each category based on the importance when creating the FICO score.
- Payment history: 35% of your score is determined by whether you have paid debts on time.
- Amounts owed: 30% of the score is based on the amount that you have in existing debt. This indicates how reliant you are on credit.
- Length of credit history: 15% of the FICO score is calculated by how long you've had credit accounts. A longer history is typically better, but if you're new to credit it isn't necessarily bad.
- Credit mix: The mix of types of credit makes up 10% of your FICO score.
- New credit: 10% of your score is based on whether you have opened several new accounts in a short space of time. This raises red flags that you may default.
How to Repair Your Credit
If you have damaged your credit, there are things that you can do to repair it. Repairing your credit is important as it can look better to potential employers and give you better rates for loans.
- Get a copy of your credit reports. Obtain a copy of your report from the three national credit bureaus, Experian, Equifax, and Transunion.
- Review the report for accuracy. If there are errors, request a correction by contacting the bureau through their website.
- Monitor your credit score. It is important to know your credit score and where you are on the creditworthiness scale. Any score below 580 is considered poor.
- Pay off past due amounts. The top priority is paying off past-due amounts before it goes to collections. Paying down high account balances will help to raise your available credit limit.
- Pay your bills on time. Getting in the habit of paying your bills in a timely manner will help to raise your credit score.
- Use less than 30% of your credit. Credit utilization of 30% will improve your credit score. Try to reduce debts as much as possible.
- Seek credit counseling if you need it. Counselors can help you create a budget. They can help you identify ways to prioritize debt repayment and create a debt management plan. Credit counseling helps you manage your finances better.
How to Monitor Your Credit
You can monitor your credit report by obtaining a copy of your credit report. In order to gain access to your credit report and credit score, you need to use a credit monitoring service. A credit monitoring service aggregates the information from one of the major credit reporting agencies.
When using a credit monitoring service, be sure that you understand where the service gathers its information. It is important to find out if it comes from all of the reporting agencies or just one. Also, you will want to find out if there are fees involved.
Popular credit monitoring services
There are a few options when it comes to monitoring your credit. You can check it yourself through AnnualCreditReport.com once a year for free. You can also ask your credit card lender or bank for your credit score. Many of them offer free credit scores and credit monitoring services.
Some of the popular third-party services that can help you monitor your credit score include:
- Credit Karma: Provides free report monitoring and alerts. It includes VantageScore 3.0 with Transunion and Equifax.
- Credit Sesame: Provides Vantage 3.0 and Transunion information and credit monitoring and alerts.
- Chase Credit Journey: Offers free Transunion VantageScore3.0 and credit fraud monitoring alerts. It does not require you to be a Chase customer to sign up.
How to Prepare for an Employer's Credit Check
If you are applying for jobs, it is possible that your employers will be checking your credit. The first thing that you can do is find out your credit score. Start to take steps to improve your score by paying off any debts that you can. If you find that there are errors on your credit report, contact the credit bureau.
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