It is a little-known fact that some UK employers can legally carry out a credit check on a potential new employee. Even if you are fully qualified, have the right experience and stand a strong chance of being offered the job, you could be rejected based on this alone. Even employees already in jobs are not immune from regular credit checks. The employer won’t see your full credit history, but a short summary highlighting information relevant to a risk of financial difficulty.
Why does an employer need this information?
A potential employer cannot obtain this information without your explicit permission. This is usually on the application form or in the job listing and your application is seen as permission to acquire this information where required. Unlike a full credit report that you may request at any time, this version contains far less information. It won’t contain marital status or year of birth. Such data might compromise the hiring process and break employment equality laws. Neither does it contain information such as your accounts or a complete credit score.
Instead, it shows a summary of how much money you owe to debtors (credit cards, outstanding loans, mortgage etc), a record of payments you have made, and credit available. Such checks are routine in some industries and will not damage your credit score. Any future credit check list will not list past so-called “soft” checks. However, the full check that you can request will show any and all past credit checks, including those of employers.
How will the employer perceive a poor credit rating?
There are many reasons for why a prospective employer would be interested in your credit history. Anything negative is likely to affect your likelihood of being hired; at the very least, it will raise questions about potential risk of theft or fraud:
- Late payments on debts such as loans and credit cards suggest a lack of organisation which could reflect badly on your ability to do the job, especially where many complex tasks are required to a high degree of accuracy
- Late payments could also indicate a level of irresponsibility and lack of care or attention to obligations. You will be seen as careless. Mishandling at corporate level could lead to critical failings for the business and potential larger consequences
- Excess credit and loan applications, too many credit cards, suggests that you are in financial difficulty. Without knowing you any better and without casting aspersions on your integrity, this could indicate risk of fraud or theft to some employers.
It must be reiterated that not all businesses conduct credit checks. Not all businesses need them. Requests are more likely when the job involves money, or where there is a high level of security clearance for sensitive data.
What are the consequences of a poor credit rating?
If a potential employee fails such a credit check, they are unlikely to be offered the job. However, rejection is not inevitable. In the next round of interviews or before you take up the job if offered, you may be required to explain why you have such a poor credit score. This unusual step could be the decider whether the employer offers you or somebody else the job. Even if you are the better candidate, they could pass you over in favour of somebody else they perceive as more responsible, reliable, and with greater attention to detail.
For employees already in a job, it is unlikely you will lose it unless having a good credit rating is essential to the job. For example, banking, insurance, security services, military and anything else where sensitive information is a core part of the job could create a conflict of interest. As with the employee they are looking to hire, full disclosure is necessary. Talk to your employer before they raise the issue so that they are aware of the problem.
What should I do about poor credit?
If you’ve applied for a lot of credit in a short space of time, even if you have no debt and have never defaulted, this will reflect badly on your record. It is based on a number of assumptions about how much money you have, owe, and need to pay off. Closing all but one credit card will help manage your current debt and improve your credit score.
You should also consider a debt consolidation loan. This is one of many different types of loan aimed at people with a poor credit rating. If you have lots of money owed in multiple places, just for the sake of management you should consider consolidating them into one easy monthly payment. If you regularly find you have short term cash flow problems, consider other short-term finance such as payday loans or guarantor loans. Managing your debt, reducing the number of debt channels will improve your credit score.
Finding your way back into work is an exciting time, but until you get your first pay packet, money will be tight. Applying for bad credit loans can help take the edge off those difficulties while you adjust to the new situation.