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Updated on Wednesday, August 13, 2014
The summer after my college graduation I came face-to-face with the reality of needing a good credit report and strong credit score. As a naïve co-ed, I’d never truly pondered the consequences of using a credit card. All I knew is that utilizing it properly would help build something called credit history. A fact I became familiar with after my father insisted I get a credit card my freshman year of college.
Pushing a credit card on an 18-year-old college kid may sound like bad form to some, but my father’s strategy was sound.
I entered college with no student loans thanks to a combination of parental support and scholarships. With this in mind, my father suggested I get a credit card in order to start establishing credit history.
He took the time to walk me through the important points of credit card use:
- Don’t max it out
- Pay it off in full each month (aka only buy what you can afford)
- If you only pay the minimum then you’re just throwing away money in the form of interest to the banks
Thanks to his foresight, I graduated college with no debt and a 720 credit score from the responsible use of one credit card. At the time, I only recognized the no debt part; I never thought to check out my credit report and score (rookie mistake).
Fast-forward three weeks and my new roommate and I were pounding the streets of New York City looking for suitable housing. We hit up Craigslist, tried referrals from friends and ultimately succumbed to using a broker to help us find an apartment. When we finally found a roach-and-rodent-free apartment in our price range, we scurried back to the broker’s office to submit the paper work. She looked up at us and said, “And we’ll need $50 to run your credit check?”
“Huh?” I thought to myself while wondering how much an unexpected $50 would damage my budget.
“Your landlord will need to see your credit report and score to determine if you’re a responsible tenant,” she emphasized.
“What is she talking about?” I thought (probably aloud).
This is when I realized my Dad’s advice to get a credit card was some of the best he’d ever given me. Thanks to him, I had a 720 credit score (instead of no credit score) and was able to get my first apartment with minimal stress.
So, why does this matter for the average college kid?
Landlords aren’t the only ones using your credit report to see if you’re responsible: employers do too.
Note that a credit report is different than a credit score. The score is merely a gauge of what is reflected on the report. The credit report is a thorough history of your life as a borrower and includes details on things like: loans, credit cards, mortgages and if any of your bills went to collections.
Why do employers want to see your credit report?
There are a variety of reasons an employer may run your credit report.
- To see if you’re responsible
- To verify you are who you claim to be
- To determine if you could handle a company credit card
- To see if you’re financially stable – even though your bank account information is not reflected in this report, they can see your loans and how you utilize credit cards
In fact, the use of pulling a credit report is two decades old, according to Experian spokeswoman, Kristine Snyder. (Experian is one of the three credit bureaus.)
“Some companies have been using them for 20 years, mostly when they hire people who will be dealing with money. Traditionally, the biggest users of credit reports for employment purposes are companies in the defense, chemical, pharmaceutical and financial services industries because of the sensitive positions many of their employees hold,” wrote Snyder in an email.
Will you know if they run a credit report?
“Federal law does prohibit anyone from accessing an employment report without first obtaining written permission from the consumer,” Synder emphasized.
What can employers see when they get a credit report?
Experian offers a report called Employment Insight, specifically for employers.
According to Synder, this report contains:
- Consumer identification: including Social Security number
- Address information: including length of time at current and previous addresses
- Employment information: providing insight regarding an applicant’s previous work history
- Up to two places of employments
- Other names used: such as maiden names and aliases
- Public record information on bankruptcies: liens and judgments against the applicant
- Credit history providing an objective overview of how financial obligations are handled
- Demographics Band (including driver’s license and phone number verifications)
- Profile Summary (including payment patterns)
What will be kept private from an employer?
- Your credit score – but they can probably make an educated guess based on the information in your report.
- Your year of birth
- Information about a spouse
- Account number information
What if you don’t get hired?
The credit bureaus don’t offer any sort of recommendation about whether or not to hire you with your credit report. It’s simply supplemental to other portions of the interview process: skills tests, in-person interview, references, etc.
However, if you aren’t hired based on information in your credit report, then federal law does require your potential employer to give you both a copy of the report and a written description of the consumer’s rights.
Why it won’t impact your credit score
Don’t fret about this damaging your credit score. Your employer performs what is known as a soft pull (or soft inquiry), which doesn’t cause any sort of drop in your credit score nor is it reflected on your credit report moving forward.
Moral of the story
Bad credit history can impact more than just your ability to get a credit card or a lower interest rate on a loan. It could actually prevent you from getting a job. If you have questions about building credit start here and then check out our Fine Print Blog for plenty of articles on ways to build and improve your credit history.