Yes or no: Can banks look at your credit scores when deciding whether or not you'd make a good employee in their organization?
If you thought "yes" you would be wrong.
"This is the number one myth with respect to credit scoring," consumer education and credit expert John Ulzheimer, told eFinancialCareers.
"Employers in most states are able to look at credit reports as part of their pre-employment screening but they can't use credit scores anywhere.
Trouble is, many people confuse the terms credit "report" and credit "score" and believe they are the same thing. "It's a prevalent myth because a lot of people use the terms interchangeably. Yet, all three credit bureaus have gone on record time and again saying that they do not provide credit scores on the credit reports sold to employment screening companies."
So, what is the difference anyway? You might be surprised.
A credit report is basically a listing of your credit accounts and payment history, month by month. If you've been late with payments, it will show how late: 30 days or 60 days, for instance. If you're being courted by collection agencies, that will be included. If you've filed for bankruptcy, or have bank judgments or liens against you, your credit report will show that as well.
Clean credit reports are easier.
The fact is, however, that many folks who've have just about tapped out their credit cards-and may have poor credit scores-will present clean-looking credit reports, so long as they've been getting their minimum payments in on time.
A consumer might conclude their credit report looks good or even great because of a lack of anything derogatory. "However if you've got too much credit card debt, too many inquiries, and a poor mix of different types of accounts," that same person's credit score could be average-or even worse.
Credit scores focus largely on your payment history and how much debt you've accrued.
And for scoring purposes, lenders like a borrower to diversify and have a portfolio of secured debt like home equity lines of credit and auto loans, together with unsecured forms of debt like credit cards, where there is nothing to show for the loan in question, and less incentive to pay it off. FICO scores range between 300 and 850, with under 620 considered risky.
So, how come banks and other financial institutions that commonly dig into prospective employees' credit reports can't obtain credit scores, as well?
"Credit scores were never built to predict prospective employee quality. The tool is not designed to evaluate employees so all three credit agencies-Equifax, TransUnion and Experian-have chosen to not sell a credit score along with the credit reports they sell for employment screening," says Ulzheimer, who has worked both at FICO and Equifax over the course of his career.
Prospective employers do make liberal use of credit reports, however, since federal law permits that. And employers are most apt to delve into prospective workers' (or even current employees') credit reports in an industry like banking or even human resources where employees have access to sensitive information.
"You are representing the company and the company is somewhat liable for your actions," says Ultzheimer. "They have to be comfortable with you before they give you the keys to the kingdom."
Since 2003, it's been easy for consumers to access their credit reports once ever 12 months, and yet 96% of these reports go unclaimed, says the credit expert. The one legitimate source for free credit reports is annualcreditreport.com, says Ulzheimer.
Besides getting a peek at your report, what else can you do if you're concerned about poor credit plaguing your employment search?
You might try debt counseling: "The National Foundation for Credit Counseling is probably the most recognized and legitimate of the credit counseling agencies, says Ulzheimer.
"It is truly non-profit, and for a fee of $25 to $50 a month they will work with creditors to facilitate a debt management programs for you that can forgive a portion of the interest and a portion of the fees you are paying."
"That's a lot less than some of these other vultures will charge you," he adds.