Should a credit check be allowed or required by an employer? Perhaps. However, times are so difficult already for millions during a pandemic, legislation might outlaw such a thing.
Further, after the economy collapsed in 2008-2010, it’s not uncommon for people to have lost their homes to foreclosure or short-sale. One’s credit score usually gets demolished by 200 points or more, and stays that way for 3 years or longer.
A Credit Check After A Foreclosure
One of my close friends named Tom, decided to follow through on my getting laid off plan because he’s burnt out and no longer has the desire to work in software sales anymore. He’s got enough income saved up to last him for about 2 years if he maintains his current lifestyle, which is not lavish by any means.
If Tom successfully engineers his lay off, he wants to travel for 6 months, and then see if he can find a job in sales at one of the big internet/tech companies such as SalesForce or Google.
Given his income will literally go to 0, except for his 6 months severance, and $1,800/month in unemployment benefits, he no longer wants to keep paying for his underwater condo he bought at the top of the market.
Tom’s payment is around $4,500 a month (includes property taxes and HOA), which was digestable when he was making $10,000 a month after taxes. But now that he has barely any income, he finds it a big waste to spend so much to live in a 2 bedroom, 2 bathroom condo now that he wants to go travel.
Without a job anymore, Tom no longer feels morally obligated to pay his mortgage, since the bank did agree to lend him the money based on the colateral value of the property. Besides, California is a non-recourse state, meaning that the bank can’t go after Tom’s other assets.
Credit Checks Appropriate For ew Hires?
Six months from now, Tom will want to re-enter the workforce. With the relationships he’s cultivated and the skills he’s developed over the past 8 years, he strongly believes he has a good chance of finding another similar-paying job. His only real worry is whether or not a company will decide not to hire Tom due to his poor credit score if he short-sales his condo.
Tom’s current credit score is “somewhere in the 700’s“. He doesn’t know for sure because he hasn’t checked his credit since he bought his house 5.5 years ago. Anything above 720 is considered excellent.
If Tom short-sales, he expects his credit score to drop to the 500’s range, which is absolutely horrible. Yet, Tom himself, is a hard working, honest, and nice guy.
Should he be punished for making a bad investment with a bank, given how ferocious the downturn was? Not many people forecasted such a big collapse. Did you? I guess I did in March 2020!
Arguments For Why Credit Checks For New Hires Are Appropriate
1) If you can’t handle your finances, you might not be able to handle the job.
2) One datapoint of many that gives insight into one’s character.
3) Might demonstrate a level of financial literacy, which is important with finance-related jobs.
4) Could be a signal that demonstrates reliability and responsibility.
5) Gives the employer insight into whether the candidate is desperate or not for money.
Arguments For Why Credit Checks Are Inappropriate
1) It’s none of a company’s damn business what one’s personal finances are, so long as one does a great job for them. Nobody likes an invasion of privacy.
2) Unfairly penalizes people for deciding to buy a home during a time when they simply just needed to buy because of a growing family and a desire to establish roots. Most underwater homeowners are not speculators and millions of people have lost their jobs in the downturn.
3) What if one doesn’t get the job and has a very poor credit score? A company could open itself up for a potential lawsuit by the applicant claiming discrimination based on credit score, despite the reason being very hard to prove.
What Is Your Credit Score?
The fact of the matter is, more and more employers are checking potential job applicant’s credit scores to determine employability. A credit score is not the main factor, but it is one of many variables which can serve as a tie-breaker among many candidates.
It’s important you check your score once a year. I’ve found a couple errors on my score before which kept my score down by an important 60-80 points! As soon as I cleared the errors, my credit score at the time went up from about 715 to 785.
This jump was huge, because at the time 10 years ago, it was went I bought my first rental property. If I didn’t check, I would literally have paid tens of thousands of dollars more in interest over the life of the loan had my erroneous credit score been used.
I found out my average credit score is 798, which is considered “excellent.” However, I’m kind of annoyed why it can’t just be 800. Call me greedy I guess!
It doesn’t really matter what your credit score is after about 760, because lenders provide the best interest rates for that score and above. But in order to not really matter, you must first check.
Related: How To Improve Your Credit Score To Over 800
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Furthermore, 1 out of 4 credit reports have errors, negatively affecting one’s credit score. I had a $8 late electric bill that crushed my credit score by 100 points and almost derailed my mortgage refinance. The scary thing is, I had no idea! A FTC study reported that roughly 25% of credit reports have inaccuracies. Check your credit score today.
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It’s too bad that someone’s financial irresponsibility due to immaturity and lack of financial education as a young person starting out dooms you to be denied decent employment, especially when that employment has no bearing on any financial transactions or data you won’t encounter and want to work in a field that you go to college and work the menial jobs to support yourself and your family but it still isn’t enough so you borrow student loans to live on until you get finished with the degree that you think will take care of all of your financial worries because you’ll get that perfect job that everyone tells you will be available if you just work hard in school and keep your nose to the grindstone to attain the better life. Then after you get that degree your spouse divorces you, splitting the income that didn’t pay all the bills your family has to begin with in half, thereby causing you to go further in debt and unable to pay your bills causing your credit score to go further in the toilet denying you better paying jobs that would pay everything and provide a living for you too like the previous post by the lady that is in forclosure. And the audacity of that person that said because people are poor and denied the good paying jobs because you haven’t had the opportunity to increase your earning ability because you couldn’t pay that credit card bill or other extra luxury because you chose to pay the rent, food, or utilities. how dare a person that is honest and keeps doing as they are told, work and keep on working to hopefully “get ahead” try to improve his employment status. and because he’s barely able to pay the bills that are still there after the income is cut in half, you know he’s stealing everyone blind after work to make ends meet so he can live the life of luxury that we low life financially irresponsible thugs and thieves live, cause everyone knows, like the previous poster says, that broke people don’t have morals and ethics and take what isn’t theirs, because they get turned down based on a number given to you based on the money you try to make to pay the bills you can’t. How dare us thieving low credit scoring workers expect to be judged based on our ability to do the jobs we apply for that have no financial dealings at all. Those computers and networks we take care of for the companies that need them maintained are able to be taken care of by us like they do the financially sound and adept people with perfect credit scores. How dare we let life get in the way of making sure the creditors that charge us higher interest rates for things we can’t afford in the first place don’t get every penny they can get out of us! just another way for those with power and money to keep it away from those of us who don’t and “keep us in our place”! I wanted to puke when I heard some of the previous posts! I mean really? You’re income gets cut in half and your still gonna be able to pay what you were paying and when it’s no fault of your’s when the company shuts its doors and goes overseas where the talent will accept $2 an hour to do what they were paying you that big $8 an hour that still wasn’t enough to keep everything paid in the first place!
I just read that now companies are actually firing employees after buying credit reports from TransUnion. The story I was was about Latoya Horton who worked temp for Bain & Co, and was offered a permanent job after six months. A few weeks after her permanent position started, she was fired after her credit score revealed that her debt to credit ratio was too high. Too much in student loans!! Also, a report said that 85% of the fired employees are black. A new kind of racism!! So you have no money, your family can’t help you go to college, so you take out loans, work hard, and then get fired for having student loans….. So, once, more, the rich get richer…
In my opinion, anyone who is not giving you a loan should not be allowed to check your credit. It’s sort of like if colleges and employers want to check out your facebook page. Some things are just personal.
I agree! And I just heard that not only are employers checking out your Facebook page, some employers and potential employers are actually asking for your FB login and password!!! Some states are trying to ban this, and there may be a federal bill being considered too. What kind of world is this becoming anyway???
OMG, are you serious, I would immediately let them know to lose my file and that I am not interested.
I think credit checks for employment are a good idea. If you have bad credit, you are likely an irresponsible or unmotivated person.
So let’s make sure he NEVER gets a job….. talk about a self-fulfulling prophecy!!!
I do think credit scores can tell you a lot about what kind of person an employee will be. I’m all for it because I have an excellent credit score. Did I buy a house at the top of the market..yes, in fact I did as well, but I paid it off so that it’s not underwater anymore. Would I buy a $1MM house? It’s unlikely that will ever happen, so I don’t have to worry about walking away from such a giant mortgage payment.
I had a credit check ran for my current job because I work in student loans at a large university. We run credit checks for all of our new employees, with the intent of showing whether or not our potential new hires are capable of repaying their student loans. I strongly feel that if you are in the finance industry and are counseling people about how to repay their loans and handle their finances, then you should show evidence of this in your personal financial life. It’s just good business IMO.
We run credit reports on our employees, if you don’t like it you can work elsewhere. Employers use it for a variety of legitimate business purposes.
Taking strategic default on your mortgage to get out might be legal but it’s not something you should be particularly proud of.
It should be noted that while CA is a non-recourse state when it comes to home mortgages – this only applies to new money purchase loans. In other words if your friend Tom or Paul refinanced or took a second and thinks he can default while keeping his $1MM in the bank he will be in for a surprise. Also, the forgiveness of debt is considered taxable income under certain circumstances and the rules are scheduled to change after 2012 unless congress passes new legislation.
Good thing for Tom he never refinanced, and this is a new money purchase loan he’s thinking of defaulting on!