Why Do Employers Check Your Credit Rating?

Credit Score

• A credit score is a numeric representation of your financial past. The three major credit rating agencies, Equifax, TransUnion and Experian, collect a large amount of data on your total outstanding debt, income level, payment history and access to additional credit to compute scores that reflect your creditworthiness. While a small amount of debt in relation to your total income and a history of timely payments will improve your credit score, past defaults, late payments and maxed-out credit cards lower your score. These scores can be accessed by prospective creditors as well as potential employers before you are offered a job, mortgage loan or credit card.
  
  

Significance

• A high credit score is associated with lower default risk, as well as conscientiousness. It is assumed that if you have missed payments in the past, defaulted on your financial obligations or declared bankruptcy, you are more likely to do so again in the future. If, on the other hand, you have made all payments on time, never assumed more debt than you could handle and presently have a healthy ratio of debt to income, you are unlikely to default on your debt. Your past record is supposed to be a testament to your responsible planning. In addition, lenders assume that you will be highly motivated to keep your financial record spotless going forward.
  
  

Importance for Employers

• The most important message you send to potential employers with your high credit score is one of responsibility and diligence. A recruiter will think that a future worker who has stayed on top of her financial obligations and managed her bills carefully will act the same way on the job. Such workers are expected to finish assignments on time and work harder. They are more likely to be attentive to details and come to work and meetings on time.
  
  

Financial Hardship

• Another reason employers check your financial history is that a good credit score translates into a lower probability that you will experience financial hardship over the subsequent years. Naturally, firms wish to avoid hiring workers who are dealing with severe financial issues in their personal lives. Such workers have a hard time focusing on their jobs, and their performance at work will likely suffer. In extreme cases, such individuals may also lose their motivation to continue working and quit. Especially if an unpaid bill results in wage garnishment, most of the person's paycheck might be confiscated by creditors, which could make continued employment financially less rewarding.