There are many ways to wreck your credit that extend beyond bankruptcies, past-due payments and delinquent accounts. Among this list could potentially be your employment situation. Let’s examine some ways in which your job can damage your credit.
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Do you buy supplies for the office or put work trips on your own tab? Your credit may be at risk if you use your own personal credit card to handle these transactions. Let’s assume that your company has a lengthy reimbursement period. If the sum of all purchases within a given time frame becomes so excessive that your debt-to-available credit ratio skyrockets, your credit score can take a dive. (Keep in mind that this figure accounts for about 30% of your credit score).
Also, if you can't afford to make the minimum payment prior to being compensated for the purchases, and decide to wait until you’re reimbursed, your scores can drop when your late payments are reported to the accounts. Because payment history accounts for 35% of your credit score, repeated late payments can cause a big problem with your credit, not to mention the additional interest and fees you may incur by not paying as agreed.
If a 30-day (or even 60-day) late payment is an isolated event, there probably won’t be much lasting damage to your credit. However, if this becomes a habit, then it’s a different story.
Traveling a lot for work? Renting a car on the company’s dime upfront is fine and dandy, but what happens if you have to use your own resources and seek reimbursement? You can easily swipe your credit card unless you don’t have one available. In that case, you will be forced to use a debit card, and may subject yourself to a hard inquiry on your credit report to do so.
If you are applying for a position that is in the financial sector or requires you to handle cash, company cards or sensitive information, a background and credit check will likely be required. (It's even required at some companies for positions without these responsibilities!) However, the employer must obtain written approval from you before moving forward with the screening.
Credit checks conducted by employers during a job search have no effect on your credit scores. They count as a soft inquiry on your report. The credit report provided to prospective employers looks very similar to your standard credit report, but omits your account numbers, date of birth and marital status, so no need to worry about being at risk as a result of these factors. Prospective employers will also not see your credit score.
If your application is denied on the grounds of your credit profile, the company has to give you a copy of the report that was used to make the decision and a written copy of your consumer rights. The good news is that certain states limit credit screenings for employment purposes. They include California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Oregon, Nevada, Vermont and Washington. Also, there is a movement in Congress to ban these type of employer credit checks, with some exceptions.
How to Separate Work & Credit
Assuming you’re in the category of employees that is required to make purchases before being reimbursed, you can explain the issue to your employer and request that you be granted access to a company credit card. Keep in mind that a company credit card may also impact your personal credit, as some companies ask applicants to apply for the card themselves. It's not a solution for everyone, but it never hurts to ask your employer. Maybe they can expedite the reimbursement process as well. On the other hand, if you are in the market for a new job, take the following actions:
- Obtain a copy of your credit reports.
- Dispute any errors on your reports with the credit reporting agency that issued the report containing the error.
- Include disclosures in your credit reports explaining derogatory items.
- Prepare to explain yourself to prospective employers by emphasizing that your mistakes were a thing of the past, and you have turned a new leaf and now exercise more sound financial habits.
And of course, it’s good to periodically check your credit reports throughout the year, whether or not you’re thinking of applying for a new job that might require a credit check.
Keeping on top of your credit can prepare you to deal with problems from mistakes you made along the way, or to catch and clear up errors before they cause bigger problems. You can get a free credit report from each of the three credit reporting agencies once a year.
And, although a prospective employer will never see your credit scores, those numbers are a good indicator of your credit health. There are free tools that update your credit scores regularly, like Credit.com’s Credit Report Card -- which also gives you an overview of your credit so you can spot any problem areas.
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