Why Personal Financial Competence Is Important to Employers

You’re a diligent worker with all the necessary qualifications and experience, so what’s stopping you from getting the job you’ve always wanted? It may come as a shock to learn the problem could be issues with your personal finances, specifically bad credit.

Table of Contents

• How Bad Credit Can Affect Your Job Prospects
• What Is Bad Credit?
• Why Do Employers Run Credit Checks?
• Importance of Checking Your Credit Report
• How to Repair Bad Credit
• Final Thoughts

How Bad Credit Can Affect Your Job Prospects

While bad credit can make it difficult to get a credit card, a mortgage, or a personal loan, it can also damage your chances of landing a job.

Finance firms and law companies are required by law to perform credit checks on job applicants. But, with your permission, other employers can run a credit check on you before offering you a job. 

You can refuse to let them do this. Bear in mind, though, that the employer can then refuse to hire you, and they don’t have to give a reason.

If you do give permission for an employer to run a credit check, they probably won’t be bothered about the occasional missed payment, but issues such as county court judgements (CCJs), personal bankruptcy, or individual voluntary arrangements (IVAs) are likely to raise a red flag.

What Is Bad Credit?

Bad credit means you have a low credit score.

Credit reference agencies (CRAs) compile data on everyone’s credit history. The resulting credit report includes a credit score expressed as a number. If you’ve found it difficult to pay off debts in the past, this will be reflected in your credit score.

Individuals with lower credit scores are considered to be less reliable borrowers, which increases the risk of a lender not getting their money back. This makes it harder for you to borrow money in the future. The reasons behind that poor credit score may also make it difficult to get a job.

Understanding the difference between good credit and bad credit is key to taking action to improve your job prospects. 

Why Do Employers Run Credit Checks?

Pre-employment credit checks are becoming increasingly common among companies who aren’t legally required to check applicants’ credit history.

Employers typically check your personal finances as the final step after they’ve already decided to hire you. Credit checks cost employers time and money so they’re not used to weed out a big pool of applicants.

An employer might want to check your credit report for several reasons. Mainly it’s because they want the reassurance that your personal financial behaviour won’t affect your work performance.

According to one workplace financial coaching company, 95 percent of workers in the country’s 50 biggest businesses are stressed about their personal finances, and 80 percent take this anxiety to work.

An employer might also want to know the state of your personal finances in order to verify your identity or make sure it’s safe to allow you to manage their money.

Importance of Checking Your Credit Report

You have a legal right to check your credit history and you can do so for free via one of the three credit reference agencies – Equifax, Experian, or TransUnion.

If you have bad credit, you’ll see this reflected in a low credit score. An employer won’t have access to your actual credit score, but your job prospects will be better if you can improve it by eliminating serious problems that show up in your credit history.

Checking your credit report before you apply for a job gives you the opportunity to spot any errors so you can have them rectified.

It also puts you in a good position to be ready to answer any questions the employer may have about your financial problems.

You can also ask a credit reference agency to include a notice of correction in your credit report to explain financial circumstances that an employer might otherwise question. 

How to Repair Bad Credit

You can avoid the problem of bad credit affecting your ability to get a job by taking steps to improve the situation.

Ways to repair bad credit include:

• Paying off debt.
• Paying regular bills on time.
• Using direct debit to manage bills.
• Keeping within credit limits.
• Limiting unnecessary expenditure.
• Checking your credit report regularly for any errors.
• Making sure you’re on the electoral register.

You can also use tools for improving creditworthiness, such as a credit-builder loan or credit cards designed for individuals with bad credit.

Another way to help fix bad credit is by avoiding applying for credit cards or loans that involve a hard credit check, which will lower your credit score. Instead, use an eligibility checker with a soft credit check that won’t affect your credit score.

You won’t have to worry about the employment credit check itself affecting your credit score – it will be a soft search.

Final Thoughts

A good credit score means a prospective employer won’t see any causes for concern when they check your credit report. A bad credit score, on the other hand, can affect your chances of landing a job.

For many people, their financial situation is something they’d prefer to remain private. So it may come as a shock if a boss asks to be allowed to run a credit check on you.

However, employers have valid reasons for doing this. Understanding the level of your personal financial competence can give them an insight into whether you’d make a good employee.

If you have bad credit because you’re trying desperately to make ends meet as you struggle with mounting debt, it can affect your performance at work. And with certain jobs, some employees in financial difficulties may be tempted to help themselves to company money or commit fraud.

However, bad credit in itself doesn’t mean you a bad person. An employer won’t automatically refuse to offer you a job if your credit history isn’t perfect. And there are various ways to improve your credit score in order to make future jobhunting a more positive experience.