Many consumers now may want to undergo the process of repairing their credit as a means of getting their finances back in order, but what many may not know is that this information is being used for far more than to determine whether they're eligible for new loans and affordable borrowing terms.
In addition to financial institutions using a person's credit standing as a means of evaluating their worthiness for a loan or other line of credit, many non-lending organizations are now doing so as well. This includes insurance companies, which use the data to set premium rates, or utility and service providers like cellphone companies, which use it to determine the likelihood that a person will be able to continually pay their bills on time and in full. Another group that now routinely uses credit data to vet applicants, though, is employers.
Why they use the practice
Employers that engage in checking applicants' credit standings as a means of weeding out any potentially problematic candidates typically say they do so because it allows them to determine whether applicants are trustworthy. And while many consumer advocates say that the practice is inherently unfair to consumers — because many may see their standings diminished as a result of financial hardship that often befalls them through no fault of their own — and some states even outlaw this type of credit check, it is nonetheless prevalent, as studies show the majority of businesses nationwide now take part in it.
What can be done?
Regardless of whether the practice of checking a job applicant's standing is fair or not, the simple truth is that it takes place across the country. Obviously it can be difficult for job seekers to determine exactly which potential employers will and won't ask them to submit to a credit check as part of the application process, and therefore those who want to guarantee themselves the best possible chance to land a position will likely have to do a little credit repair work to make sure they look like the worthiest candidate possible.
This should include taking the time to make up for any late payments suffered in the past several months, as payment history accounts for the biggest portion of a person's score at 35 percent. Even one missed deadline, whether it came by a single day or an entire month, can significantly lower one's score, and take months of steady on-time payments to smooth over once again. The marking will likewise remain on one's report for years at a time, making it all the more important for borrowers to show that it was an isolated incident, and one that will not be repeated any time soon.
Another 30 percent of one's score relates to the amount of debt they carry as a percentage of their available credit limits, and this factor is known as "credit utilization ratio." Therefore, those who have significant outstanding credit card balances may want to do a little more work to lower those obligations to more manageable levels. In general, the best way to do so is to cut debts to about 30 percent of maximums, or less, as this will serve to ensure this part of a score is as healthy as it possibly can be.
Further, consumers who have been repeatedly denied in their attempts to obtain new lines of credit throughout their job searches should try to discontinue applying for them in the near future. That's because another 10 percent of one's score is made up only of how often they've applied for credit in the last few months, and more is considered to be worse because lenders tend to see many applications being submitted in a short span as a sign that a borrower is having financial difficulties so severe that they have cash flow problems. As a consequence, they see them as riskier investments because it's possible they won't be able to pay back the debts they accrue.
Finally, those who hope to obtain a job even after going through a rigorous credit check by an employer should take the time to run a credit check of their own, and order copies of their credit reports. Doing so will allow them to scan the documents for any potentially unfair markings that might end up having an impact on their standings that, in some cases, could be significant. If any such entries are discovered, it can be wise to work with a credit repair law firm. Doing so may allow borrowers to more quickly and efficiently dispute these markings, and potentially return their credit standings to where they deserve to be. That, in turn, will not only allow them to secure the most affordable credit available to them, but also help them obtain jobs they want.