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!
As with most previous commenters, I agree that individuals seeking employment in the finance/banking industries should have a credit check. This could include other job opportunities that require money handling skills such as cashiers. So, does that mean that 16 year olds looking for work at McDonald’s have to have a credit check too? I wonder if in fact McDonald’s and or Burger King do require credit checks?
I would not hire a person who voluntarily defaults on his obligations in order to take a holiday. I have no interest in hiring people whose ethics and morals fall short of basic standards.
This is always an interesting one. When I last wrote about this, people’s credit wasn’t quite as bad as it is now with the millions out of work and people walking away from their mortgage. Personally, I don’t like government telling companies what they “can’t” do. I do question the value of checking credit scores for probably most jobs. But in some jobs, I’d want the credit check. If companies end up missing out on good employees or waste money on credit checks then it’s their loss. But I don’t think we need one more law dictating how companies hire.
I strongly disagree with the policy that lets you walk away from a mortgage. America is the only country (that I’m aware of) that allows this. It is such an irresponsible policy that certainly contributed to the meltdown. It isn’t the individuals fault, but the policy makers and I hope it is corrected in the near future.
But pulling the score tells something, even if it is just a little bit. The more info to analyze a potential colleague you could spend 50 hours a week is good no?
If you have 100 qualified candidates, is it not a legitimate way to help screen?
I don’t see why Tom doesn’t even try to sell the house…is it so underwater that it would not even allow him to take a loss of his down payment and move on? If it is, then I would consider renting the place out. Personally, I wouldn’t want to walk away, not just because of the credit score but also I think it would have a lot of other consequences down the road that Tom’s not really worried about right now.
My job is not in the financial industry although we deal with plenty of payments and sensitive financial matters and my job did have a credit check. But clearly there was no standard of absolutely no debt because I had both credit card debt and an auto loan and still got the job. However, I didn’t have any negative marks on my report like late payments or bankruptcy so maybe that was what they were looking for. In any case, I don’t believe they actually show employers a score, they only only see what is on your report.
I fully believe that people applying for jobs in the finance industry should be subject to credit checks. Other than that, though, I don’t see why it should be a factor.
Who decides what credit scores are acceptable? Do you hire the guy with a good score and a high debt-to-income ratio, or the one with a pathetic score but no debt? If he’s applying for a job as a truck driver, does it really even matter?
If we allow that to happen, what’s next? Do we require employees to have a Dave Ramsey emergency fund before they can be hired? A certain amount of money in the bank? Should employees present their receipts every Monday so their supervisors can see what they bought over the weekend? To me, if we universally accept credit checks for jobs that shouldn’t require them, we risk escalating those requirements until all but the fiscally perfect are unemployed and homeless.
It is quite interesting is it? Your last line in your comment really hits home. IF this happens, there becomes a DEATH SPIRAL to those without perfect credit scores.
Alas, nothing is so simple, and a lot of other attributes go into the process making of hiring.
There already is a death spiral- as far as I am concerned. My first job was as a temp for a subprime mortgage company (no credit check required). I was made permanent and hired as a Receptionist at $14.00/hr. I was 22 yrs old. I began to read the companies training materials and I was quickly promoted to Loan Set Up- responsible for pulling credit for loan applications. Still, no credit check required. My pay was increased to 17.00/hr. Eventually, I had moved up in the company until I was making 5-8k a month. I never had a credit check and I never committed a crime against anyone or my company. I kept my brokers honest and I worked hard to fund good loans. I took mortgage documents home and I had access to borowers social security numbers. All this at 25 yrs old. One day, my company laid me off a couple months prior to closing their doors. I no longer had a company account with Shred-It, yet I made sure to shred and destroy all personal information. I owned a 500k home with more than 65% equity on it. I never found another job making decent money to pay on my 175k loan. My home had been on the market for over a year and it did not sell.
When I tried to get a new job, in MY industry at 27 yrs old, I passed three interviews and they told me that they needed to pull background. On my fourth interview they called me in to ask me why my house was starting foreclosure. I explained, and they informed me that they couldn’t hire me for the job. That job would have saved my home and all the possessions I began to lose within that year. That was in 08. To this day, I have had many job offers- even as temp assignments- that have been rescinded due to my foreclosure in 08. Companies have hired neighbors of mine who have evictions and repossession but they draw the line at a foreclosure. A foreclosure can’t be paid off. Once it happens, it’s there. How long should one be punished before they are allowed to return to a middle class life?
My mother fell in the trap of the illusive cc and I learned early on from here mistakes. I am proud to say I have never paid a finance charge in my life. My house on the other hand is a different pain in the ass.
I work in he finance industry and I want to credit check everyone who works for us. I even run a credit check on our office assistant. We deal with a lot of money, so yes, I want to see how you handle your finances and if you are going to be okay when you find yourself dealing with millions of dollars. Because of that we had to deny employment to a nice and smart and capable guy. We could not trust him. However, if we are hiring a janitor who would never have access to our financial transactions and money, then I don’t really care.
Trust is a big thing indeed! Too many horror stores of financial deceit.
Should it be allowed? Yes, why not? An employment contract is a voluntary relationship, and either side has the right to refuse to enter the relationship.
Should it be required? No, why? It should be up to the business owner or hiring manager to decide if it makes sense or not.
Makes sense Kevin. I agree with your answer.
I’m a bit confused. What am I missing?
“Yet, Tom himself, is a hard working, honest, and nice guy. Should he be punished for making a bad investment with a bank?”
If Tom walks from his mortgage, don’t you all eventually pay for that in some indirect way? He may have made a bad investment. As an educated guy, I’m not sure if that was the bank’s fault.
I could be wrong, of course, but if everyone with the capacity to pay for a mortgage did this and then went on a six month holiday, would that be cool?
I don’t see how this is honest, although I’m sure he’s a good guy.
It is a dilemma, isn’t it? If the bank didn’t feel they could make money off Tom, they wouldn’t have lent him money in the first place.
Yes, this is exactly why the housing market imploded.. b/c people didn’t honor their debts, but also b/c banks lent excessively. Who is to blame? Everyone.
Not me… :)
Sam – some forward thinking employers will accept a copy of your credit report which you yourself generate. As a soft inquiry, this report will not lower your score, which cannot be said for a prospective employer’s hard inquiry. It’s always worth offering this as an alternative to agreeing to a hard inquiry.
But you can’t fight city hall – standing up for your privacy rights is noble, but won’t change the world. If they want your credit report, they are not going to change their policy for you or anyone else.
Regardless of which approach he takes, Tom should proactively advise this type of future employer that they can expect to see the ‘damage’ on his otherwise impeccable report – and he can simply explain what it means and why it happened.
Having been a hiring executive for many years in my past, I would be ok with this, and would not automatically throw Tom’s application in the trash.
The thing to remember is unlike instant credit decisions made by a computer software when you apply for a loan, an employer will actually look at the report and be willing to look ‘under the hood’ of his report – rather than give up on Tom simply because his score is now in the 500’s.
Ross, insightful, and thanks for your thoughts. One needs to pitch their story and explain without being defensive, what happened. I believe employers might be MORE inclined to hire someone who is open and honest, and who has gone through hardships than not.
Let me first start out by stating that i am also an idiot, by the definition of one of your readers. My credit score is in the 700’s somewhere, although I have not checked it in a few years. To me, the idea of a potential employer checking your credit score is very invasive and disturbing. This means that if someone makes one mistake, or has some bad luck in this housing and employment market, they are going to take a hit that will be extremely difficult to overcome. Bad credit score -> can’t get job -> worse credit score, and your life snowballs downwards out of control.
Also, from the employer’s standpoint, if they rely on numbers like this rather than on what is truly relevant to the job, combined with their own instincts, they may be bypassing the better candidate, depending on what the position is. I agree that if the job position relates to managing finances, it could be relevant. It the job is something in the creative field, it would not be relevant at all.
What if there are 100 candidates, all who look similar on paper? Would it not be telling if one had a 520 credit score vs. one with a 750?
If all these guys are similar on paper, why not just be really lazy and just interview the 3 guys with the highest credit score? Or maybe hold a race and just interview the 3 guys who can run the fastest mile?
In many, if not most jobs, your financial skills are totally irrelevant. Many very creative people have little financial sense, but could still be the best candidate for a job requiring their type of creativity. By screening out the guy with the 520 because you don’t want to bother interviewing him, you may be eliminating the very best guy for the job.
There is no proof that shows that people with weaker credit are worse employees than people with good credit, or that they are more likely to steal or commit fraud. Bernie Madoff probably had a better score than you do. Besides, you don’t know what caused a person’s poor credit score – layoff, serious illness in the family, etc. Why do you assume a higher credit score is an indication of a better character? You seriously could argue that a person with a weak credit does need the money more and would be more likely to work hard to do well and keep his job.
Tom wants to travel anyway and there is no guarantee that when he returns he will find a job close by his current condo. Why not rent that sucker out and let someone else pay the mortgage while the asset appreciates in value. In the meantime Tom can find a less expensive place to rent himself once he knows where he will be employed. If he later decides he doesn’t want to deal with the underwater condo (assuming it is still underwater) he can get rid of the tenant and the condo at that time. He will already be employed so no big deal if his credit score drops.
Rent might not cover all costs, given there is property tax as well. To be free is a wonderful thing.
You’re preaching to the choir about freedom Sam :)
To me…this is yet another example of our current financial structure forcing us hostage to this mythical “credit” status. Honestly, my goal is to get into a position where I don’t ever need credit again. I know it’s hard to get arms around but think about this…credit is only really needed if one does not have capitial and wants to borrow. If you can accumulate enough capital so that you don’t need to borrow, then you don’t really care what you score is. That’s my goal.
Hi BE, I agree with this completely. Some have it good where they have cash, already own their home outright, or have a mortgage, and already have a good credit card. But, they still want to have the option of working if they want. That would be bad to be denied due to bad credit.
When you’re getting a loan, the financial institutions usually ask for a job letter, recent pay slip, and any obligations that you might have. They also check your credit using a local agency. But I’ve never thought about finding out my score. It would seem strange for an employer to ask for a credit score…
Gotta find it out Dannielle! Knowledge is power!
BTW, I tried commenting on a couple of your posts, and each time I click the post it says “404 error”. Might wanna check!
thx
I think it’d be appropriate in a job that involves finances – paying invoices, receiving payments, managing money. In that case your personal finance history is RELEVANT to the job (i.e. it’d reveal your financial strengths and weaknesses). If the job isn’t related to finances at all, and your financial habits/skills are irrelevant… then that’s a different story.
When would your financial habits/skill be irrelevant?
In my opinion the answer is never.
This is a good point.
I am in favor of a credit check. Sometimes bad marks on a credit report can be explained but it is also a great indicator of proper decision making skills. Of course, I don’t think people with higher credit scores are better workers, but potential problems could vetted if this was standard practice.
Honestly, Tom is an idiot. Who hasn’t checked their credit score in 5 years? With the numerous completely free options: Credit Karma, Credit Sesame, freeannualcreditreport.com, etc.
Anyways, I think the employer is looking out for it’s best interets. If you think a credit check is crossing the line, you don’t have to work for them. I think a credit check can be an insightful part of your character. This is what employers want to know when they are considering investing 100’s of thousands of dollars into you.
I don’t think Tom is an idiot for not checking his score for 5 years. He hasn’t needed to, since he has every credit line he needs. I do recommend checking once a year, but if you’ve got all the credit you need, it’s not that big of deal not to check.
It is a big deal.
Mistakes are made all the time by credit companies. I once found a credit card on my credit report that was not even mine! Luckily, the person’s whose it was was responsible and made all their payments, but a mistake is a mistake.
I had to call and get it fixed.
Plus, with ID theft running rampant, you don’t know who has been applying for cards in your name. Checking your credit report each year is a good way to check and see if anything wrong is happening, and get it fixed before it mushrooms into something worse.
There is a difference between checking your credit report and checking your score, though. I check my credit report every 4 months (1 free report from each bureau per year), but I don’t pay to see my credit scores because I’m not applying for credit.
@Andeah: Ah, ok. I didn’t catch that difference. I thought FS was saying that checking your reports weren’t important. To me, saying “checking my credit score” is synonymous with “checking my report.” I use them interchangeably (probably because I usually get the report that shows score and report all in one), but you’re right, they’re technically different!
Thanks for pointing that out.
I think checking the accuracy of one’s credit is important as I write in my article:
“It’s important that you do know, and that you do check at least once a year, if not once every 6 months to make sure your score is correct. 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.”
Even if “it doesn’t tell the whole story”, isn’t it better to have information than not.
I once interviewed someone and they had a GPA above 3.0 on their resume. When we got the transcript the real GPA was about 2.5. This transcript “may not tell the whole story” – but it told me enough – we did not even consider hiring this person.
I think more information is better than less information and knowing someone has a low credit score would be important to me.
By the way, I’m an auditor.
You got one employee who has a clean criminal record, have outstanding former employer recommendations, graduated an excellent school, but bad credit. Another employee is completely the opposite with bad credit. Do you not see that credit has no bearing on both of these employees?
I agree with John. Credit does not tell the whole story. This is an employer, not a lender. Credit scores are designed for lenders.
We will just have to agree to disagree.
Its all about information – the more the better.
I think someone with low credit is more likely to need money and thus more likely to steal or do other unethical practices.
@David M – OR you might say that someone with low credit is more likely to need money and thus will work really hard to do a good job. On the other hand, you could say (for argument’s sake) that a person with good credit might have been very successful stealing and doing unethical practices at his last job. Or that a person with good credit is less likely to need money, and won’t work as hard.
I hear your points as well.
I agree it does not tell everything – however, I think it helps.
Thanks for your response!
Any accounting/financial job will require a credit check. This should include ay job that handles money as well. Some companies will do credit checks on everybody because it fits with their philosophy. I interviewed with EDS a long time ago and Perot (founder & Pres.) had a thing about debt. The ease of checking credit now makes it available for pennies.
In this economy, I think everyone is aware of the housing crisis and would understand. I would also think unemployed people would not be dscriminated either. As a hiring manager, I “might” think he did not have good judgment buying at these inflated values. The credit check is just black & white, but it does not stop someone from using the information to exclude him.
Can he find out if the companies he is interested in do credit checks? Does he know someone in those companies, he can ask these questions? How far underwater, is he? Is his decision to walk away because it interferes with his travel plans or what?
I think employers are trying to use many things to flush out people from consideration. Background checks are also possible.
Background checks are even more invasive than credit checks. I say it’s an agreement w/ the prospect and employer.
An employer should ASK if they have the prospect’s permission. If no, then the employer has a right not to hire the employee.
Although I have been out of the market for over 10 years, I believe the prospect must give permission. It may be an innocuous statement he/she signs when they fill out their application.
BTW, I chose to not pursue the EDS opportunity because it meant moving to Texas and shaving my mustache. Personal freedom is important to me and the mustache is a symbol of that.
I think for some jobs, a credit check is very appropriate. One of my first jobs was in the financial aid office at a university. I was hired right after the scholarship director was let go and arrested for embezzlement.
For those of us that have access to company accounts and credit cards, I think it’s reasonable to look at someone’s credit report, though I also think it should be just one piece of the decision, not a deciding factor in it’s own right.
I do have sympathy for Tom. My mother is doing a short sale on her house right now. Not because she can’t afford the payments, but because she is retiring (not even trying to get laid off, voluntarily retiring) in September. Once she retires, she won’t be able to make the house payment, so instead of going in to default, she’s trying to do a short sale now. You can call her a bad person for not meeting her obligations, but she’s just trying not to end up a complete burden on her kids or society- which is what would happen if she had to try and make the house payment after retiring.
I am not saying she made the smartest of decisions when she bought, though living in NV means her property values have taken more massive hits than a lot of places, but she is trying to make the most responsible decision she can now.
Luckily, she won’t be trying to get a job again in 6 months, and has the car she intends to drive for the next 10 years. So the only place a poor credit score is going to hurt her is when she goes to rent an apartment- but they’re kind of used to getting short sellers, so I doubt that will be much of an issue.
As for Tom, I think maybe he should talk to people at the companies he would be interested in applying to in 6 months and find out what their policies on pulling credit reports are and how big of an impact do they make on hiring decisions. Then, he can have a better idea if short selling or walking away would really hamper his ability to get another job.
Wow! Well, in that case, a credit check is a no-brainer!
Thanks for showing some empathy for Tom. I don’t think a short-sale is as bad as foreclosure at all. It’s an agreement w/ the bank to sell the house for less than the mortgage, thereby ridding the asset/liability off BOTH books.
I should probably write a post about this.
I think a credit score is important when it comes to certain financial related jobs. Jobs in other areas? Probably not as important.
Like I stated above – I think all employers should pull a credit score on every person they are thinking about hiring – to me I think this is money well spent.
A low credit score might mean you are having financial difficulties. What can that lead to FRAUD.
Regarding your questions, I think it might be a combination of 1 and 2. Stop paying travel for 6 months and then deal with the consequences. It might make it more difficult to find a job but – this still might be the best option. Which really means I’m saying #2 but am saying he should not hope/think he’s not going to be handicapped over other applicants.
Sometimes you just have to make decisions and deal with the consequences later. 20 years ago I got laid off from public accounting and then took a job as a staff accountant. I hated this job and quit after 3 months. I travelled in Europe for 2 months and then came back and looked for a job. Was I “handicapped” due to having quit a job after 3 months – absolutely. I even had someone stop in the middle of an interview and tell me that because I had quit the prior job after only 3 months she was not willing to take a chance on me. However, it took me about 6 months to find a job and I have been in this same job for over 20 years.
I did not mean this to be a reply I meant it to be a post by itself.
I completely agree with you. Credit does not tell the whole story. This is an employer, not a lender. Credit scores are designed for lenders.
If the employer is so insecure, then perhaps they need to retool their internal controls rather than looking at future employees as possible criminals.
I’ve always thought it’s weird that employers can pull those. Mine was always decent when I was looking for work so I was lucky it wasn’t a worry for me. Some employers are really thorough though. I got a copy of some reports one company pulled before they hired me and I was shocked how much they had on me. It felt invasive but at least I got the job!
I would look into the renter personally to see if he could cover his costs. I could see dropping the mortgage if he absolutely couldn’t pay it, but that’s not the case. He’s choosing to be unemployed. I don’t see any reason why he shouldn’t do everything in his power to continuing paying for something he purchased.
As far as the credit check, I’ve worked in finance so the credit check is standard. For a position that doesn’t handle money, I don’t see a purpose for a credit check. Certain sales positions have access to company money via an expense account. A credit check could be a valid tool for hiring decisions. After all, if I was a business owner, I’d want someone to responsibly handle my money.
You make a VERY interesting point about jobs that require a corporate credit card/expense account for the employee! Totally didn’t think about that angle. I think if a potential employee is to use a corporate card, then a credit check is warranted and required.
Check out CreditKarma.com for a free peek at one of your credit scores (Trans-union, i think).
I think it depends a LOT upon the job itself. A job handling the company’s money should require a check to make sure you can handle your own money (and that you’re unlikely to steal it).
I also think that walking away from your mortgage is wrong but that’s another discussion altogether.
Would it be OK to walk away if Tom was fired, and in serious financial pain eg only 2 months of savings before bye bye?
I think there is legislation (either introduced or recently passed) that outlaws discrimination on basis on credit score. it’s legitimate for finance / security companies to check on an applicant’s credit, but I’d want some type of protection for folks. Otherwise, it’s just a catch-22: lose job, can’t pay bills, get poor credit, can’t find job because of poor credit, can’t pay bills, get worse credit. Besides, I am not aware of any studies that say an applicant with poor credit is a worse worker than someone with good credit.
It is a Catch-22 isn’t it? Hmmmm….. like rolling the dice almost! Don’t know of any studies either.
Unless the employer is a credit card company, I see no reason that an employer should need a credit check. It should make no difference what his credit is.
How a low credit score might mean you are in financial difficulty. What does financial difficulty potentially lead to FRAUD. That’s why I think every employer should check every employee’s credit – just my opinin!
Employers should not be allowed to check an employee’s credit. After all, they already check the employee’s criminal history. If the employer is so insecure about hiring an employee, they need to first look at their internal controls rather than looking at the employee first. Credit and credit scores are generally developed to assess somebody’s ability to repay a debt obligation. Using this information to predetermine an employee’s future criminal behavior is discrimination.
This is the great thing about America – we can disagree.
I absolutely think an employer not only should be allowed to and should get it.
Hello,
Correct me if I am wrong, but I thought a few years ago, the US Federal Government ruled that employers can not deny you employment based on your credit score. That would be considered illegal and profiling/ discrimination. However, employers can make your poor credit score one of the reasons, but cannot be the solely reason.
The question is, if you want the job bad enough, would you let the employer check?
I think seeing what he could get for rent, and seeing if he can get a 6 month renter sounds like a more sound idea. If he can’t, and if he’s really under water, then screw it!
Thanks for highlighting a credit check resource.
I would never be Tom because if I had a mortgage of $4500, I wouldn’t get strategically laid off. I am actually having a hard time focusing on the credit score part because I am mad at Tom. It is amazing to me that people feel they have financial freedom when they don’t plan on meeting their financial obligations.
Maybe if people walk away from their mortgage and travel it would indicate that maybe they wouldn’t mind treating their job in a similar fashion and a credit check for Tom wouldn’t be a bad thing.
Tom has been paying his underwater mortgage for two years now. He made an agreement with the bank for a loan, and the bank knows the risk. Tom did sink 20% down and will be losing his DP if he leaves.
So Tom is a hero because he has met his commitment for two years? I just find it so strange that people think they can plan 6 month long trips when they have no plans to cover their bills.
I know some people think nowdays that the bank takes the risk because they made the agreement blah blah. However, I live next door to a Tom whose house was allowed to go to hell. The bargain basement selling price will affect the home price of anyone looking to sell in the neighborhood.
Living next door to a Tom sucks, no doubt. What is your neighbor going to do? How long has he been a homeowner?
I will be covering this in the very new future. The house just sold for a song. A cruddy song that is…
Well, but if he thinks that way, might he think the same for the job?
“I’ve worked for this employer for 2 years now and done a good job. Even though they paid for my training and I promised to stay here for 5 years, they knew the risk that I would jump ship to a higher paying job”.
Same logic, no?
My lowest FIFO score from the Big Three in July 2011 was 793. Went through divorce, short sale of home, credit for January 2013 is 541. Looking for new employment, turned down because of credit check. This really should be illegal. I personally know a neighbor that works as a Financial Advisor. She informed me that if her and her husband ever went through a divorce and had financial stress, she could lose her licenses and job.
So let’s be clear. We are always to be pro-active and see into our futures or we can be denied an income. Companies, Big Corporations and Governments can and do make bad business decisions and still are able to obtain new loans.
Eddie, sorry about this. I’m assuming the employer did not admit to the denial due to your credit score right?