You've survived the final interview for a great job with an employer you can't wait to work for. Then, a piece of mail arrives that dashes your dreams and sends you back to the help-wanted ads. It's called an "adverse action letter," the legally mandated communication that employers must use to inform applicants that information from a credit report caused them to revoke an offer or end the review process.
If this happened to you, you're not alone. When the Society for Human Resource Management (SHRM) studied the issue in 2010, researchers found that about 13 percent of organizations used credit checks as a filter for all job applications. Nearly half of organizations reserved credit checks for job finalists.
Newspapers and talk shows have chronicled tales of qualified job seekers who can't find work because of their credit reports. For instance, The New York Times documented how an upscale shoe salesman's brush with bad health during the recession left him with unpaid bills that disqualified him from many retail jobs. Likewise, an experienced banker told CNN Money he couldn't find work after a short sale on his home during the financial crisis showed up on his credit report.
Credit checks let employers make lazy, hasty decisions
Checking a job applicant's credit makes sense for some professions, especially in businesses where workers handle cash or sensitive information. You probably wouldn't want to hire a bank teller who might be tempted to pay off some overdue debt with customers' deposit money.
Despite anecdotal evidence of "false positives" and bad outcomes, many hiring managers still use applicants' credit reports to streamline the evaluation process. Thanks to online job applications and email, a manager might receive resumes from hundreds of viable candidates for a single opening. For the majority of American companies, using credit reports as a screening tool makes the hiring process far more manageable.
Still, the process doesn't play fair for job seekers with strong skills and bad fortune. Long before her successful Senate campaign, Elizabeth Warren explained to NPR's Terry Gross that fraud, carelessness and clerical errors create frequent problems for consumers. As many as 1 in 4 credit reports, Warren told Gross, contain errors that could cause substantial damage to a credit score. That, in turn, can keep your application from ever reaching the desk of a hiring manager.
How to reduce your risk of rejection from employer credit pulls
First, perform the same kind of cleanup on your credit report during a job hunt as you would if you wanted to buy a house. Request free credit reports from each of the three major credit agencies from AnnualCreditReport.com. Review each report, line-by-line. Challenge any errors and request their immediate removal from your credit reports. Dispute any debts that have transferred to third-party collections agencies, so you can get at least a brief period while collection agencies attempt to verify your debt from their records. Append any problematic entries with a consumer statement that explains how the debt got there.
Second, prepare a strong rebuttal to the worst possible story your credit report could tell a potential employer. According to the SHRM, 87 percent of employers allow rejected candidates at least a brief opportunity to explain any adverse findings on a personal credit report. If you can show that your past financial challenges bear no reflection on the quality of work you would contribute to an organization, you might convince a hiring manager to give you a shot.
State lawmakers ponder credit check bans
According to data collected in the spring of 2013 by the National Conference of State Legislatures, just 10 states restrict employers from using applicants' credit information to determine job eligibility:
Another 25 states have debated draft legislation seeking to curb or prohibit the practice. However, with so many lawmakers squabbling over tax dollars and high profile political issues, it's hard for the movement against employer credit checks to gain traction in most state capitals. Unless you live in one of the states mentioned above, you'll need to polish your credit report -- as well as your resume -- the next time you're looking for a new job.