How Employment Credit Checks Keep Qualified Applicants From Getting the Job

by Amy Traub



Today, it is common for employers to look at job applicants’ personal credit history before making a hiring decision. According to a survey of human resources professionals, nearly half of employers check an employee’s credit history when hiring for some or all positions.1   The practice is hardly limited to high-level management positions: even a brief look at a popular job listing website reveals that employers require credit checks for jobs as diverse as doing maintenance work, offering telephone tech support, assisting in an office, working as a delivery driver, selling insurance, laboring as a home care aide, supervising a stockroom and serving frozen yogurt.2   Some employers also conduct credit checks on existing employees, often when they are considering a promotion.

Executive Summary (PDF) Employment Credit Checks Are Common Poor Credit Is Linked To Unemployment, Lack of Health Coverage, and Medical Debt People of Color are Disproportionately Likely To Report Poor Credit Credit Reporting Errors Are Commonly Cited as a Contributor to Poor Credit Policy Recommendations

Yet despite their prevalence, little is known about what credit checks actually reveal to employers, what the consequences are for job applicants, or employment credit checks’ overall impact on our society. This paper, drawing on new data from Demos’ 2012 National Survey on Credit Card Debt in Low- and Middle- Income Households, a nationally-representative survey of 997 low and middle-income American house- holds who carry credit card debt,3 addresses these questions and finds substantial evidence that employment credit checks constitute an illegitimate barrier to employment.     Credit reports were not designed as an employment screening tool. Instead, they were developed as a means for lenders to evaluate whether a would-be borrower would be a good credit risk: by looking at someone’s history of paying their debts, lenders decide whether to make a loan and on what terms.   Accordingly, credit reports include not only an individual’s name, address, previous addresses, and social security number, but also information on mortgage debt; data on student loans; amounts of car payments; details on credit card accounts including balances, credit limits, and monthly payments; bankruptcy records; bills, including medical debts, that are in collection; and tax liens.   Credit reports may be purchased by employers through any number of companies that offer employment background checks (which also may include checks of criminal records or other public data) but the credit portion of the report is typically supplied by one of three large global corporations: Equifax, Experian, and Transunion, which are also known as consumer reporting agencies (CRAs). Credit scores —another product used by lenders which consists of a single number calculated on the basis of information in a credit report—are not typically provided to employers.   Employment credit checks are legal under federal law. The Fair Credit Reporting Act (FCRA) permits employers to request credit reports on job applicants and existing employees.4   Under the statute, employers must first obtain written permission from the individual whose credit report they seek to review. Employers are also required to notify individuals before they take “adverse action” (in this case, failing to hire, promote or retain an employee) based in whole or in part on any informa- tion in the credit report.   The employer is required to offer a copy of the credit report and a written summary of the consumer’s rights along with this notification. After providing job applicants with a short period of time (typically three to five business days) to identify and begin disputing any errors in their credit report, employers may then take action based on the report and must once again notify the job applicant.

Read the entire FANTASTIC paper by Amy Traub here

 

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The Credit Score That You See is NOT the Same as Lenders See

FCRA Lawsuits Way up. Why?

The Credit Score That You See - NOT The Same As Lenders See

The credit score you receive may be much higher or lower than the one a lender uses when deciding whether to give you a mortgage, credit card or auto loan, a new government report finds.

One out of five consumers is likely to receive a score that is "meaningfully" different from the score used by a lender to make a credit decision, according to study from the Consumer Financial Protection Bureau that analyzed 200,000 credit files from the three major credit bureaus, TransUnion, Equifax and Experian.

As a result, many of these consumers receive either better or worse terms on mortgages, credit cards, auto loans and other credit products.

"This study highlights the complexities consumers face in the credit scoring market," said CFPB Director Richard Cordray in a statement. "When consumers buy a credit score, they should be aware that a lender may be using a very different score in making a credit decision."

The credit score a lender sees often depends on the type of loan or credit product they are considering. Lenders that use FICO scores the most commonly used score, could be looking at one of 49 different scores to determine how risky you are -- including a FICO auto score, a FICO bankcard score and a FICO mortgage score.

YOU HAVE  49 FICO SCORES 

While you receive only one type of FICO score, lenders can choose from a variety of scores based on the kind of loan you're applying for. So if you want an auto loan, the lender can look up your FICO auto score. Apply for a credit card and there's a specific FICO bankcard score lenders can use.

There's also a FICO mortgage score, an installment loan score and a personal finance score that specifically focuses on your history of using financing companies -- for example, if you've signed up for store-branded credit cards. Then there's the generic FICO score, which is the most widely used score and is calculated based on your history with all forms of credit.

Even though newer versions of FICO's scoring software are being used, many credit reporting agencies continue to make older versions of the software available to lenders -- adding to the overall number of FICO scores for each consumer.

"The lender is going to choose the [scoring] model they think is most appropriate for what the consumer is applying for," said John Ulzheimer. "FICO is trying to further differentiate the risk of doing business with a consumer generically versus for a specific product. For example, I care how you pay your auto loans for any decision, but I really care about how you paid your auto loan if you're applying for an auto loan."

These scores are for lenders' eyes only, said Ulzheimer. When you request your FICO score, you receive the generic version. And the score you get may be about 15 or 20 points higher or lower than the score the lender is using to screen you, said Ulzheimer.


The discrepancy between the scores lenders and consumers receive was the subject of a report issued last year by the Consumer Financial Protection Bureau that showed that scores may differ for a variety of reasons, including the use of different scoring models by credit reporting agencies and that lenders and consumers don't always get scores from the same reporting agency.

To more closely compare the scores lenders and consumers receive, the CFPB said it would obtain data about credit scoring from FICO and from each of the three credit bureaus.

Rod Griffin, director of public education at Experian, said Experian provides different FICO scores to lenders depending on the kind of risk they are trying to assess. And he said consumers don't need to see every single score, because they are all based on the same information contained in a credit report -- some scores just weigh certain types of lending information differently.

So just because a consumer is seeing a different score doesn't mean that a lender is looking at different information. 

"There's a tremendous focus on these numbers, but what's really important is the credit report -- your credit report is what's used to calculate all of those scores, and you control what's on your credit report," said Griffin.


And though consumers are being kept in the dark about many of the scores lenders are using to evaluate them, in most cases that 15- to 20-point difference in the score is not going to hold much sway when it comes to being approved or denied for credit, said Ulzheimer.

"If someone is a high risk, they're going to be a high risk for any product, and if you have a great [generic] score, you're going to have a great score for any product," he said.

Aside from FICO scores, which are the most commonly-used scores, there are a plethora of other credit scores out there -- like proprietary scores developed by the credit bureaus and scores you can get from private companies like Quizzle.com, CreditSesame.com or CreditKarma.com.

"The grand total number of credit scores is truly countless -- so while 49 FICO scores seems like a large number, it's really a drop in the bucket," said Ulzheimer. "The good news is that proper credit management transcends all credit risk scores. If you do the right things, you'll have a good score across the board.

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The Worst Loan That You Can Default On IS .... 

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The Worst Loan That You Can Default On Is.....

 I think we’d all agree that the past few years have been tough on tens of millions active credit consumers. Foreclosures continue to be a huge problem, we’re now in $800 million of credit card debt, and our student loan debt just crossed the $1 trillion mark. This means it’s likely that loan defaults will increase over the next year.

I’m writing this for the consumers who find themselves in one of those difficult places where you have to decide which bills you’re going to pay each month. You can’t afford to pay all of them, but you can afford to pay some of them.

Now, who’s getting your money? Before you answer the question there are a variety of things to consider.

Which default is the worst for your credit reports and credit scores? Which default is most likely to end getting you sued? Which default can cause an interruption of your housing and transportation? And which default is going to cost you the most money?

In order to keep this information digestible, I’ve decided to split it into two parts. Today, in Part 1, we’ll explore the impact of loan defaults on your credit reports and credit scores and how defaulting can potentially expose you to litigation. What you’re going to realize is that there are pros and cons to defaulting on different types of loans.

Credit Reports and Credit Scores

You’re probably thinking, “Dude, I can’t afford to pay all of my bills. I don’t care about what’s going to happen to my credit.” Fair enough. But, while I’ve got your attention…

When you start missing payments and delinquencies start to show up on your credit report there is no hierarchy of “which one is worse?” A late payment is a late payment is a late payment, regardless of what loan or account it’s on. So a 30, 60, or 90-day delinquency on a credit card is just as bad as doing the same on a mortgage loan.

Having said that, missing payments on your mortgage will eventually hurt your scores more than missing payments on your credit card. Why?

The answer is simple: you’ll accrue a much larger delinquent balance on a mortgage than you will on a credit card. When you miss a credit card payment, the only thing that’s past due is the minimum payment. When you miss a mortgage loan payment, the repercussions could cost you thousands of dollars. And when it comes to calculating your FICO scores, there’s a component that measures past due balances.

Bottom Line: For your credit score health it’s best to miss credit card payments over mortgage or auto loan payments only because the past due balance is likely to be lower.

Litigation

You should be very concerned with the prospect of being sued if you default on any of your credit obligations. You can’t ignore the guy who knocks at your door and serves you with the complaint. Well, you can, but you’ll lose by default and then you’ll be subject to a default judgment. If you do choose to fight the lender, whom you actually do owe a ton of money, you’ll be paying a lawyer to do it. That’s not a cheap date.

While any loan default can lead to you being sued, it seems to be much more common if you default on credit card debt. Normally, it takes 6 months for a credit card issuer to “charge off” delinquent credit card accounts and then they’ll likely sell them to a debt buyer. Debt buyers are notorious for suing debtors for defaulted credit cards.

If you find yourself in this situation it’s not a bad idea to make a settlement offer to the credit card issuer before your debt gets shipped off to the collection agency. They’ll make more from a settlement than they’ll make selling the debt for pennies on the dollar.

If your debt does make it to a collection agency, offering a settlement is still a viable offer and you can do this on your own. You don’t have to hire a 3^rd party debt settlement company to make settlement offers on your behalf (and charge large fees at the same time).

Bottom Line: To reduce the possibility of being on the wrong side of a collection lawsuit, make sure you pay your credit cards on time and preferably off, as soon as possible.

Article source: Mint.com

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Can Bad Credit Ruin Your Job Search?

Have you ever applied for a job and wondered if your bad credit would affect the outcome? Pre-employment credit checks aren't that uncommon these days. 

According to a survey released by the Society for Human Resource Management in 2010, 13 percent of the companies surveyed check the credit reports of all candidates and 47 percent check some candidates.


Should you be worried if you have a poor credit history?

Employment-related credit checks are legal in most states, but there are limits to what employers can see and how they can use your credit information. Here's what you need to know about credit reports and your job search.


Contrary to popular belief, employers can only see your credit report not your credit score. Credit reporting agencies do not provide your credit score to employers as part of the pre-employment screening process. "Credit scores are sold along with credit reports, but they are not the same thing," says John Ulzheimer, the president of consumer education at SmartCredit.com. 

Your credit report offers an overview of how much debt you have and whether you pay it on time, while your score is a number that represents your credit risk, usually between 300 and 850, based on this information. Under the Fair and Accurate Credit Transactions Act, all Americans are entitled to a free credit report, but not a free credit score, from each of the three major credit reporting agencies once every 12 months.


According to Mike Aitken, director of government affairs for SHRM, employers look at long-term trends, not whether you missed a loan payment or forgot to pay your Visa bill a few times. "They're looking to see if the person can handle their personal finances," he says. "In particular, they care about when things go into default or judgment." As Ulzheimer says, things get messy when collectors start calling the office or trying to garnish wages, so employers want to avoid those situations.


Before an employer can view your credit report, they need your permission in writing. That's a requirement under the Fair Credit Reporting Act. Once you grant permission, Ulzheimer says employers generally buy that information, along with a criminal background check and other information, from third-party screening companies. Aitken say it can cost employers upward of $200 to run background checks on each applicant, so they'll usually wait until they're almost ready to make a job offer. And unlike other credit inquiries, employment inquiries do not impact your credit score.


You could deny a prospective employer permission to view your credit report, but the company might not hire you without this information. Under the Fair Credit Reporting Act, before the employer makes an adverse decision based on your credit report, such as denying your job application, the employer must tell you and provide a copy of the credit report. They are not required to give you the opportunity to explain your bad credit, but SHRM's study found that 65 percent of employers say they give candidates the opportunity to explain the contents of their credit report before making a hiring decision. If you have serious credit issues, Gail Cunningham, vice president of public relations for the National Foundation for Credit Counseling in Washington, D.C., suggests being upfront about it. "I would be truthful and say succinctly what happened that caused your financial hiccup and how you intend to pull out of it," she says, adding that consumers can contact credit bureaus and electronically submit a 100-word explanation to accompany their credit reports.


Some states have or are getting stricter on pre-employment credit checks. An Illinois law took effect in January that outlaws employment-related credit checks except in a few very specific instances. Hawaii, Oregon and Washington already have laws limiting this practice. And 25 states have bills pending in the 2011 legislative session, according to the National Conference of State Legislatures. "In these economic times, with millions of people having a foreclosure or bankruptcy on their record, employers are going to have to rethink the relevance of a credit report with respect to a job applicant," says Cunningham.


Aikten knows of a few cases where a company chose not to make a job offer based on the findings of a credit check. In one case, a company discovered that a prospective CFO had tens of thousands dollars in gambling debt, so they felt a fiduciary responsibility to find someone else. But he stresses that credit reports are rarely the deciding factor. "Just because somebody has a bad credit report doesn't mean they'll embezzle or steal," says Aitken, "but it is a factor along with work experience, certification requirements and character references. It's one piece of the pie."


If you think you're home free once you land a job, think again.

"Ask anybody in the military who's lost their clearance," says Ulzheimer. "It's not terribly common, but you can lose your security clearance if you start to have collections issues." According to the 2010 SHRM survey, almost 20 percent of employers conduct ongoing credit and/or criminal background checks post-hire on employees working certain jobs, such as those with access to confidential information, and 5 percent do them for all employees. Some firms perform credit checks before granting a promotion or a change in status and some do so annually.

All the more reason to continually monitor your credit report and work to clear up any issues, as corrections won't happen overnight. Just as you shouldn't wait until you're applying for a car loan or a mortgage to think about your credit report, you shouldn't wait until you're asked to share your credit report with potential employers.

"People say 'I don't care what my credit report looks like, because I'm not applying for a loan,' but what if you lose your job tomorrow?" asks Ulzheimer. "You always have to be worried (about) what's on your credit report."


John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.

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A Credit Score That Tracks You More Closely

By: Tara Siegel Bernard
Anyone who has recently applied for a mortgage knows that lenders are already looking much more closely at your financial affairs. But soon, they’ll be able to easily delve into the deepest recesses of your financial life, accessing information that never before appeared on your credit report.


This week, a company called CoreLogic introduced a new type of credit file, which is based on the giant repository of consumer data it maintains on just about everything that most of the traditional credit bureaus do not: missed rental payments that have gone into collection, any evictions or child support judgments, as well as any applications for payday loans, along with your repayment history.
The new report also includes any property tax liens and whether you’ve fallen behind on your homeowner’s association dues. It may reflect that you now owe more than your house is worth or if you own any other real estate properties outright. It also is supposed to catch mortgages made by smaller lenders that the big credit bureaus may have missed.
 
The idea, CoreLogic says, is to provide lenders with more details about prospective borrowers, supplementing what they already know through the more traditional credit reports furnished by the big three credit bureaus, Equifax, Experian and TransUnion. Moreover, CoreLogic has formed a partnership with FICO — the provider of one of the most popular credit scores used by lenders — which will formulate a new consumer score based on the new data.

Perhaps it’s not surprising that a company decided to pull together this information, since much of it is already publicly available. But because it comes on top of all the other information that’s being collected about you — your exact location at every minute, where you’ve been on the Web — you can’t help but feel that some of these companies know more about your activities than your spouse.
While the CoreScore credit report became available to all types of lenders on Wednesday, the actual score, which will be ready in March, is being created specifically for mortgage and home equity lenders, though it could eventually be developed for other types of credit.

For many consumers, the files are likely to reveal black marks that previously went undetected, which may damage an otherwise clean record. But the companies contend that it works both ways: The added information could help consumers with thin credit files by illustrating positive behaviors elsewhere, say making timely rent payments.

So why now? Clearly, the two companies saw a business opportunity. Lenders, who just a few years back looked the other way, remain particularly skittish about mortgage lending and are looking for more information about prospective borrowers’ ability to pay their debts.

“Lending is very constrained and origination volumes need to grow to make for a profitable mortgage business,” said Joanne Gaskin, director of product management global scoring at FICO. “So lenders are looking for ways to expand, but to expand safely.”

An estimated 100 million American consumers will have a CoreScore credit report, while more than 200 million people have traditional reports from the big three bureaus. Though the new information can influence a lender’s decision, the new score isn’t replacing the classic scores used in the automated mortgage underwriting systems kept by Fannie Mae, Freddie Mac or the Federal Housing Administration, which buy or back the vast majority of mortgages (though CoreLogic said it has let the agencies know what it is doing). But the added information may sway a lender to charge you more (or less) in interest on a mortgage. Lenders of all stripes, including auto lenders, have access to the reports, and they will be marketed to employers and insurers, too.

Ms. Gaskin said that FICO was still tweaking the credit score’s formula. But the next step is to build something that will try to get even deeper inside your financial mind: The company plans to create a more sophisticated tool that will predict how you might behave under different loan terms.

Read the rest of the article HERE


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Girl Scouts Add New "Good Credit" And "Finance" Badges

By Ben Popken on October 20, 2011 2:00 PM (Girl Scouts USA)

The Girl Scouts just finished their first redesign of their badges in 25 years, adding several new ones that will appeal to Consumerist readers.

There's now a "Good Credit," "Money Manager," "Budgeting," and a "Financing My Future" badge. But It's not just the consumer credit side that's getting represented, but also the other side of business. There's a new "Customer Loyalty" badge in the cookie sequence, as well as Meet My Customers and Business Plan badge.

For an Ambassador level scout in the 11th or 12th grade to earn the "Good Credit" badge, for instance, one of the tasks to accomplish is meeting a loan officer at a bank to discuss how one becomes a good candidate for a loan and what are the duties of a responsible borrower. After they've learned about credit reports and credit scores, the girls must make a pledge as to how they will use credit in their life.

A Girl Scouts USA spokesperson said that the badges add up to a program of financial literacy education that schools aren't providing.


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Don't Worry - Employers Are NOT Going To See Your Credit Score

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Finally!! An accurate piece about credit scores and employment by: Janet Aschkenasy

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Yes or No: Can banks look at your credit scores when making a decision on whether or not you would make a good employee in their organization?

If you thought "yes" you would be wrong.

“This is the number one myth with respect to credit scoring,” consumer education and credit expert John Ulzheimer, told eFinancialCareers.

“Employers in most states are able to look at credit reports as part of their pre-employment screening but they can’t see the credit scores.

Trouble is, many people confuse the terms credit "report" and credit "score" and believe they are the same thing. “It’s a prevalent myth because a lot of people use the terms interchangeably. Yet, all three credit bureaus have gone on record time and again saying that they do not provide credit scores on the credit reports sold to employment screening companies.”

So, what is the difference anyway? You might be surprised:

A credit report is basically a listing of your credit accounts and payment history, month by month. If you’ve been late with payments, it will show how late: 30 days or 60 days, for instance. If you’re being courted by collection agencies, that will be included. If you’ve filed for bankruptcy, or have bank judgments or liens against you, your credit report will show that as well.

Clean credit reports are easier.

The fact is, however, that many folks who’ve have just about tapped out their credit cards—and may have poor credit scores—will present clean-looking credit reports, so long as they’ve been getting their minimum payments in on time.

A consumer might conclude their credit report looks good or even great because of a lack of anything derogatory. “However if you've got too much credit card debt, too many inquiries, and a poor mix of different types of accounts,” that same person’s credit score could be average—or even worse.

Credit scores focus largely on your payment history and how much debt you’ve accrued.

And for scoring purposes, lenders like a borrower to diversify and have a portfolio of secured debt like home equity lines of credit and auto loans, together with unsecured forms of debt like credit cards, where there is nothing to show for the loan in question, and less incentive to pay it off. FICO scores range between 300 and 850, with under 620 considered risky. So, how come banks and other financial institutions that commonly dig into prospective employees’ credit reports can’t obtain credit scores, as well?

“Credit scores were never built to predict prospective employee quality. The tool is not designed to evaluate employees so all three credit agencies—Equifax, TransUnion and Experian—have chosen to not sell a credit score along with the credit reports they sell for employment screening,” says Ulzheimer, who has worked both at FICO and Equifax over the course of his career.

Prospective employers do make liberal use of credit reports, however, since federal law permits that. And employers are most apt to delve into prospective workers’ (or even current employees’) credit reports in an industry like banking or even human resources where employees have access to sensitive information.

“You are representing the company and the company is somewhat liable for your actions,” says Ultzheimer. “They have to be comfortable with you before they give you the keys to the kingdom.”

Since 2003, it’s been easy for consumers to access their credit reports once ever 12 months, and yet 96% of these reports go unclaimed, says the credit expert. The one legitimate source for free credit reports is annualcreditreport.com, says Ulzheimer.

Besides getting a peek at your report, what else can you do if you’re concerned about poor credit plaguing your employment search?

You might try debt counseling: “The National Foundation for Credit Counseling is probably the most recognized and legitimate of the credit counseling agencies, says Ulzheimer.

“It is truly non-profit, and for a fee of $25 to $50 a month they will work with creditors to facilitate a debt management programs for you that can forgive a portion of the interest and a portion of the fees you are paying.”

“That’s a lot less than some of these other vultures will charge you,” he adds.


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