However, in recent years, the use of a credit check as an employment tool has been expanded by most major companies to cover all professional hires. Corporations now believe credit reports tell them about your ability to handle personal finances while measuring your standard of living.
MISCONCEPTION
Credit reports are only used when candidates are applying for positions that require handling cash.
REALITY
Credit reports are now run on most management and sales candidates.
In addition, credit reports can predict how salespeople will treat expenses. They can also reveal insights into the likelihood of a manager staying within his or her budget and provide a quick balance sheet determining how much compensation candidates need to meet financial obligations. Too much debt usually signals short-term employees who continually search for that higher paying job.
Consider the situation of Bill, a thirty-seven-year-old regional sales manager for a major utility company who was attempting to move back into industrial sales. Bill's resume and salary history listed earnings between $80,000 and $135,000 in three previous years. Discussions with Bill revealed that his current job provided a maximum income potential of $90,000. During our conversations, he described the expensive home he purchased in Naperville, a suburb of Chicago. He was carrying a mortgage in excess of $4,000 a month. The position he was interviewing for was a wonderful growth opportunity, but it had an earning cap of $100,000.
When Bill's credit was checked, we discovered he was two months behind on his mortgage, over his credit limit on two major credit cards, and liable for $55,000 in personal loans. Our bank's calculation estimated that Bill needed $80,000 in income just to meet his debts. Furthermore, it was estimated that he could not live comfortably on anything less than an annual income of $140,000. '
MISCONCEPTION
Credit report information is only limited to data on credit card balances.
REALITY
Credit reports provide in-depth information on payment histories and provide a balance-sheet look at your short- and long-term liabilities.
After the credit check, we understood why Bill had so many financial questions during the interview, such as, "How soon are bonuses paid?" and "What dollar amount is granted as a standing advance for travel?" Bill needed money, and he needed it fast.
History and experience dictate that people in financial trouble usually get that way because they have a tendency to spend the limit of their current income. As a group, salespeople have the most problems with poor credit because of earning fluctuations and a highflying life-style. It is not uncommon to have salespeople fall $2,000 to $3,000 behind in expenses because they spend travel advances on personal expenditures. These overdue advances must be paid off when they leave an employer, and the money most often comes from a personal loan or an up-front signing bonus from a new employer.
In addition to making a statement about your ability to manage finances, a credit report that reveals legal suits, bankruptcies, repossessions, and foreclosures opens the door to serious questions about your character and personal habits. Individuals who have earned good salaries but have problems with finances subject themselves to questions about drug abuse, gambling, and illegal activities.
Take Sam, for example, an affable, unattached fifty-year-old looking to secure a $75,000 sales position with a high-tech component distributor. Interviews with Sam revealed that he had earned in excess of $250,000 in 1984 because of a big hit on an open-ended commission program.
MISCONCEPTION
Credit reports are only read by accountants.
REALITY
Credit reports are oftentimes analyzed by a hiring manager to provide an estimate of your standard of living.
The following year his employer capped his income at $150,000, resulting in a confrontation that eventually led to Sam's quitting. The most he earned in any of the following years was $85,000. Discussions with his personal references confirmed the $250,000 income and the confrontation that had followed. His story checked out.
Everything looked good until Sam's credit report came back.
Personal Bankruptcy 1987-Federal District *
Court
Now, think about it for a moment. He didn't have a mortgage, he earned $300,000 in one year, and two years later he filed for bankruptcy. What's your initial reaction? Well, since Sam never raised this serious issue in the interviews, and because three other qualified candidates were available for the position, Sam was quietly dropped from consideration. Later we heard through a recruiter that Sam's bankruptcy was attributed to a bad investment in a start-up company. He was on the hook for the start-up's unpaid debts. Had this information been brought up in the interview originally, Sam may have stayed in the hunt for the sales position.
A poor credit report, just like a negative reference, can eliminate you from the competition after you survived the cut.
So to determine the current state of your financial affairs, you first need to run a credit check on yourself to find out how you look on paper to an outside observer. Notations in your report such as "repossessed," "foreclosed," "bankrupt," or "charged off" will set off alarms.
MISCONCEPTION
If you have had problems in the past with bad credit, it is best to keep this information to yourself.
REALITY
If you know your credit will be checked, it is advisable to discuss any problems before, not after, the employer gets the printout.
Not raising the issue in the hope that employers will not run credit checks is like playing Russian roulette. Why take the chance? Be up-front with potential employers and control your own destiny by monitoring your own credit history.
