Credit Score

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What You Should Know About Credit Checks on Job Applicants

by CreditScore.net Staff Writer on November 6, 2011

What You Should Know About Credit Checks on Job Applicants

Background checks are necessary parts of certain kinds of employment processes. For example, if you are applying for a government job where security clearance is required, then a background check is an accepted part of that process. But background checks and, more specifically, credit checks are not always a necessary part of a job hunt. You need to know why employers use credit checks and what your rights are when it comes to releasing your credit information.

The Issues

The objections to credit checks are based primarily on the notion that it is an invasion of privacy. Employers feel that they have a right to know as much as possible about new applicants, while the applicants feel that employers are using credit checks as a form of screening that is not based on the applicant’s qualifications.

One issue that applicants have with credit checks is that it gives an employer a detailed look into the past of the applicant. If you are applying for a job where handling large sums of money is in the job description, then it would make sense that an employer would want to know about your credit history. If you cannot handle your own money or are having money problems, then you may be a threat to steal from the company. But if you are applying for a job in the mail room, then your credit history has little to do with your ability to do the job.

Another issue with employment credit checks is that it can encourage discrimination among employers. Your credit rating is not necessarily a reflection of how you handle money. Situations such as a divorce or a loss of job can have a severely negative effect on a person’s credit rating but are not necessarily the fault of the individual. Employers that use credit ratings as job hiring criteria are grouping all people with low credit scores into one group, and many people feel that is discrimination.

The Fight

Under the Fair Credit Reporting Act that was passed by congress in 1970 and amended to include credit checks in 2003, an employer must obtain an applicant’s written permission in order to do a credit check. That helps applicants to know when employers are looking at their credit reports, but it does not solve the issues.

Many states are trying to ban credit checks from the employment process completely. In the state of Ohio, legislation was introduced in 2011 that would ban all employers from using credit checks as part of the employment or promotion process.

Other states such as Maryland and Wisconsin are also considering legislation that would ban or limit the abilities of employers to use credit checks on applicants. Hawaii and Washington State have laws in effect that limit the ability of an employer to use a credit check during the application process. As of 2011, no state had actually passed a law that would prohibit employment credit checks completely.

Incomplete Data

A credit score alone does not give the full history of a consumer. Employers that use credit scores without asking for clarification can miss out on employees with stellar experience but who have had bad luck in the past.

There are several reasons why a person’s credit score would be low that are not that person’s fault. Some of these reasons include:

  • Unpaid medical bills that were not covered by insurance but too excessive for the consumer to pay.
  • A divorce that turned a two-income house into one-income and caused a major upheaval in the bill paying process.
  • Loss of a job that eliminated the income used to pay the bills or the inability to find a job after graduating from college.

In most cases, accumulation of unpaid debt that lowers a credit score is not the fault of the consumer. But these credit score hits can keep a person from being able to get the job he wants.

What Are They Looking For?

So what are employers looking for when they use your credit report as a hiring tool? Some of the information is purely speculative while other information is used as a check against the information you provided on your application and in your resume.

Credit Score

As we have mentioned previously, the employer is looking at your credit score to see if you are a reliable person. While it may not sound fair, an employer will sometimes equate a low credit score to being generally unreliable. You may be working three jobs to pay the bills and raising two kids, but if you are falling behind on your credit card payments, then that can label you as unreliable.

Work History

Your credit report has your work history and a potential employer is checking to see if you left anything out and to make sure you were accurate on what you reported on your application. This is why you should get copies of your credit reports and make sure the information is correct. One wrong job listing could cost you your chance at future employment.

Previous Addresses

Some employers like stable employees that do not move around a lot from place to place. When you move your home address frequently, employers think you are either hiding something or are unable to stay in one place for an extended period of time. This is another reliability check, and employers also want to make sure that you included your correct current and previous addresses on your application.

Financial Situation

Unfortunately, your credit report gives a fairly accurate picture of your financial situation. Once again, if you are working three jobs to pay the bills and trying to get a better job to get caught up, that will show up in your credit report. While your personal financial situation would seem to be none of a future employer’s business, it is still used as part of the employment process.

Until the federal or state governments put concrete laws on the books saying that credit checks are not part of a job application process, you will just have to take measures to protect yourself. Part of the Fair Credit Reporting Act says that every American consumer is entitled to one free copy of their credit report from each of the three major reporting agencies once a year. Order yours and make sure they are accurate.

Prior to going to a job interview, call your state attorney general’s office and ask what your rights are when it comes to credit checks and job applications. Get information in writing and know your rights before you give a potential employer the opportunity to look at your credit report.

Categories: Credit Score, Uncategorized

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Who’s to blame for the U.S. credit rating drop?

by CreditScore.net Staff Writer on August 8, 2011

With Standard and Poor dropping the U.S. long term credit rating from AAA to AA+, the future of borrowing for Americans just got a bit more bleak. Interest rates are projected to rise as a result, making it more expensive to take loans out to pay for college, buy a house or car, or even take a business loan. This effectively reduces the access to money for Americans making economic recovery that much tougher.

So who’s to blame for all of this? In reading the S&P statement it’s difficult to narrow it to one cause. No single person or group is entirely to blame and there’s certainly plenty to go around. Here are some of the suspects:

Wall Street and the Economy

There’s nothing easier to blame for government deficits than the current state of the economy. America is in a recession which means less tax revenue for the government forcing them to either reduce spending, increase taxes, or continue to spend beyond their means (or some combination of the three).

It’s hard to imagine that the U.S. would be in this situation had the mortgage and banking crisis never happened. Not only were the bank bailouts a large portion of the increase in public debt, but the following recession has been the worst since the great depression, and the recovery process has been slow if at all. Now thanks to the credit rating drop, it looks to be prolonged even more. If Wall Street isn’t among your list of groups to blame for the credit ratings drop, you might not fully understand how we got here.

Government spending vs. the debt limit

The U.S. Government has a debt of just over $14 trillion. And it’s growing. While the U.S. has almost always had public debt, in the past few decades, both public debt and trade deficits have increased dramatically fueled by expensive wars, an expanding government, and limited revenue. Both parties agree that making cuts to government spending is necessary to help balance the budget so that the U.S. doesn’t need to exceed its self imposed debt limit. Unfortunately, mutually agreeable cuts are not enough to prevent the U.S. from exceeding this limit. So in the meantime, the limit must be increased or face default.

A major part of the debate (and why it became a crisis) was whether or not to allow the U.S. to increase the debt limit unconditionally or to attach required additional spending cuts as a compromise. Failure to either balance the budget or raise the debt limit would result in defaulting on the country’s debt obligations. The results of defaulting would have likely been worse for the U.S. credit rating, but the very fact that it was so close to a reality is (in part) why the rating dropped despite the U.S. averting that undesirable scenario.

Republicans

The Republican stance to the debt limit was to allow only a dollar-for-dollar increase to the limit that corresponds with proposed budget cuts. Additionally, they were pushing for a balanced budget amendment to the Constitution forcing the U.S. to effectively stop deficit spending. Some Republicans have been trying to push this agenda for more than 30 years without success.

Finally, Republicans have refused to budge on the issue of tax increases, the most stern and successful of their stances. This stance and the Bush tax cuts were even specifically mentioned by S&P:

“Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.”

Tea party principles adopted by the GOP have become a fiscally conservative policy to “starve the beast” limiting the spending power of Congress to reduce the growth of government. Politically bringing the debt limit to crisis level in order to force the opposition to negotiate with these political ideologies is a major reason why the economic future of the U.S. is unclear.

Democrats

The initial Democratic proposal on the debt limit was to have an unconditional increase without any spending cuts attached as has been done this way for years. They also wanted a large increase to the debt limit to support borrowing money until 2013. The problem was not all Democrats agreed and the bill was defeated 318 to 97 with 82 Democrats voting against it. Still, Democrats who supported this bill are criticized for unanimously voting against a clean increase in the debt limit when George Bush was president and the Republicans controlled Congress.

Another position widely favored by most Democrats was that they are opposed to major cuts to entitlement programs like Social Security, Medicaid, and Medicare. This stance was also specifically mentioned by S&P:

“…controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements… is less likely than we previously assumed and will remain a contentious and fitful process.”

It’s these stances and political polarization between the major political parties that are cited as a major reason for uncertainty when it comes to U.S. fiscal policies.

Obama

Obama is certain to receive a lot of the blame for the credit drop even if much of it isn’t directly his fault. As a President who inherited one of the worst economic situations in U.S. history, a lot of the initial causes for the crisis had little to do with him. Still, history remembers who was president when a crisis happens, and with the help of political posturing, associates it with their term.

Much of the current criticism of Obama, however, is in his inability to let the Bush tax cuts expire and end the wars in Iraq and Afghanistan (the top 2 contributors to the deficit in the last decade). And as promises made during his campaign for office, he’s yet to be able to follow through on either. Some argue that if he had kept true to these promises, the current situation might have been avoidable.  Even still, it is President Obama’s job to make Congress accountable for timely negotiations of a mutually acceptable deal.  And yes, the Republican party did not make this easy, so instead we get this:

Politics as usual

The budget control act of 2011 which passed Congress and was signed into law on August 2nd, 2011 may have delayed the debt ceiling crisis, but it didn’t end it. The bill specifies $917 billion of cuts over 10 years in exchange the initial debt limit increase of $900 billion ($400 B immediate increase, and a $500 B option for president Obama subject to a Congressional motion of disapproval). The bill then outlines a plan for finding another $1.5 Trillion in cuts by a legislative committee called the “super committee”. Depending on the cuts the President may request another $1.2 to $1.5 Trillion debt limit increase also subject to the same motion of disapproval. Finally, Congress is to vote on a balanced budget amendment (but it is not required to pass in order to have the debt limits increase). No tax increases were a part of the bill.

The biggest problem with this bill is that it’s not a final solution. Rather, it is a temporary extension of the issue so that some of the finer details can be worked out later. The major factor cited by the S&P for reducing the U.S. credit rating was political-financial uncertainty. The true culprit was the failure by our politicians negotiate a deal which would keep the U.S. from being in the same “crisis” in the near future. Political positioning by both parties are directly to blame.  In fact, both parties have been playing this game with our budget limit for the past 10 years.

Without political cooperation and some kind of middle ground, the U.S. probably won’t earn back its AAA rating.  Until a clear plan is set to turn the U.S. debt around, the road to financial recovery will likely be a long and (perhaps) painful one.  S&P got it right.

 

 

Categories: Credit Score, Debt

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5 Essential Tips for Credit Repair and Maintaining a Good Credit Rating

by CreditScore.net Staff Writer on July 27, 2011

Everyone wants to have a good credit score but thousands of people have really bad credit ratings and as much as they want to improve their credit score rating, they don’t even know where to begin. There are a lot of people that hire companies to help them catch up on money they owe that have a lot of success, but many companies that you will pay to help you do the same things you could do on your own without paying. Wanting to fix your credit and taking the time to learn the things you can do by yourself to help achieve this is just the start, once you know how to go about it you can start taking action and in no time you can have a good credit score once again. Following these steps can help you back to good credit and they can also help you stay out of debt in the future and maintain that good credit rating.

  1. Budget – Budgeting your income is the most important thing you can do to start getting your credit back on track, the lack of a budget is one of the main reasons many people run into credit problems. The best way to get started is to make a list of your income every month, all the bills you have to pay on a monthly basis such as mortgage/rent, car payments, groceries, and utility bills. Next you want to list secondary bills; these are things like your cable/satellite service and other things that you might be able to cut back on if necessary. Once you figure this out then you know how much money you have left each month after everything is paid and this is money you can use to start catching up on debt. Keeping good rack of every penny is very important when you are trying to get your financial and credit situation back on track.
  2. Communication – This is another important step in getting your credit score back in good standing, but communication with the companies you owe money to and are behind on is another key. This is important because most companies understand that any people are having financial difficulties and many are willing to work with you to help you get caught up, but without talking to them this will never happen. So be sure to answer the phone if they call you, which most will, and if they don’t you need to be sure you call them and speak to someone in their financial department, explain the situation and try to work out a payment agreement that will satisfy you and them.
  3. Discipline – Having discipline with your money is another extremely important key in getting your credit rating all straightened out, this means sticking with the budget you outlined as well as not splurging on cool gadgets or other things that are not a necessity. This is a hard one for many people because people see things everyday that they don’t necessarily need but they want, but holding off on these luxuries is something you have to do to get your finances straightened out. Once you get your financial and credit situation on track and also get some extra money saved then you can buy yourself these things again, but always be sure you can afford it and it is not something that is going to cause more financial issues after you spent the time and effort cleaning it all up.
  4. Cutbacks – This one goes hand in hand with budgeting and it was touched on briefly in that section, but this is something that can help and should have its own section. The majority of people have many luxury items they pay a monthly fee for, whether it is subscription television services like premium channels, eating out, vacations, and much more. Everyone has their own little things they can be paying quite a bit for, so cutting back on things that are not necessary so you can put that extra cash towards your debt is another way you can speed up the process. This is tough for everyone because we all have things we enjoy that we don’t want to have to let go, but it is something that can help you get out of debt faster and you can resume them when you are all caught up, assuming you can afford it on your budget anyways. Don’t go back to spending money you don’t have once you get out of debt or you will find yourself right back in the same situation and have to start all over.
  5. Tracking – This is something everyone should do anyways, with or without credit problems. Keep track of your finances! You should always know what is coming in and what is going out and it will be an asset for you to always keep on top of. Whether you do it yourself in a spreadsheet or you buy software to help you keep track of it all this is one of the best ways to always know where you stand, and it can also help you so you can save some money and also be able to afford some of the luxury items. Knowing where your financial situation stands can keep you out of debt and you can have a healthy credit score so when you do need credit then it is available.

Image Credits: SqueakyMarmot

Categories: Credit Score

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Your Insurance Company Wants to Know Your Credit Score

by Miranda Marquit on February 8, 2011

One of the things I notice when I look over my auto insurance policy papers is that there is a little discount in there for my credit score. Since I have good credit, my insurance premium is a little lower than it might otherwise be. If my credit score were to drop, though, I would soon see an increase in my insurance policy premiums. This is because insurance companies are increasingly interested in the way you conduct your financial affairs. Connections are being made between the state of your credit report, and the likelihood that you will get in a car accident.

Poor Credit = Poor Driving Habits?

One of the reasons that auto insurance companies are interested in looking at your credit score is that there is a belief that those who behave irresponsibly with their money may behave irresponsibly behind the wheel of a car. If you have poor credit, insurance companies think, perhaps you will have poor driving habits.

The idea that one’s credit score is an indication of responsibility in other areas of life — especially when money is on the line — is one that is gaining a degree of acceptance. In some cases, your character is being judged by what is in your credit report. If it results in a poor score, many financial service providers (including auto insurance companies) assume that you are generally irresponsible.

What About Extenuating Circumstances?

Critics of the practice of using credit scores to help set auto insurance premiums point out that one’s whole life, and his or her driving habits, can’t really be reduced to a single number. Indeed, just looking at a credit score may not tell the whole story. It doesn’t include unexpected financial setbacks, such as medical bills, and other problems.

Some auto insurers may allow you to explain your poor credit score, allowing you to explain that you are generally responsible, but that something unexpected happened. The information contained in your credit report might be of help in these instances. However, you still might find yourself paying a higher premium, due to your credit score.

Improving Your Credit Score

If you want to reduce your auto insurance premiums, you can improve your credit score. This takes some planning and work, though, and can’t be done over night. You will need to improve your payment history, making sure that all of your bills are paid on time and that you pay the full amount required. Additionally, you should work on paying down your debt, and avoid opening new credit accounts.

With some proper planning, you can begin to see some marked improvement in your credit score within 60 to 90 days. Once you have improved your credit score, you can ask your auto insurance agent about getting a discount for having better credit.

Even though it might not be fair to judge your driving habits based on your credit score, the fact of the matter is that many auto insurance companies do look at your score when setting premiums. If you want to save as much as possible on your auto insurance premiums, you will need to do what you can to improve your credit score.

Categories: Credit Score

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How Long Does A Repo Stay On Your Credit?

by Hank Coleman on February 4, 2011

How long does a repo stay on your credit?Many people know that there is the possibility that their possessions could be repossessed if they do not pay their bills. Cars are often the most thought of item that can be repossessed for failure to pay, but other items like furniture, boats, and other items paid in installments can be repossessed. The repossession, or repo, is also reported to the three credit bureaus. Not only are you hit with negative marks for not making your payments on time, but a repossession will also be noted in your credit report as well. But, how long does a repo stay on your credit? Read more…

Categories: Credit Score, Debt Collectors

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