By Judi Ketteler
Most people know a black mark on their credit might hurt their chances of getting a favorable interest rate for a car or home. It even could influence whether a landlord wants to rent to them. But credit checks are being used to make determinations about all kinds of things these days -- including employment.
"You have about a 33 percent chance today that an employer is going to check your credit before hiring you," she said.
Though most people feel this is an invasion of privacy, Hurlburt said that in today's world, how you've conducted your personal finances very well might be a potential employer's business because bad credit can directly impact workplace productivity.
Employees with bad credit or a serious problem with debt are more likely to be stressed out, which means they might be sick more often. Also, credit collections agencies don't just call people just at home -- they track them at work and call repeatedly, several times a day perhaps, Hurlburt said. Calls on the job from bill collectors can directly impact employee performance.
Add to this the fact that garnishing an employee's wages actually costs an employer money -- as much as $5 every time. It might seem like small potatoes, but it can add up quickly, she said. You can't fire someone for having bad credit, but you can decide not to hire them.
Still, there are very strict guidelines set by the Federal Trade Commission (FTC). According to the Fair Credit Reporting Act (FCRA), an employer must get your permission to look at your credit report. If the information in the report prevents you from getting the job, you must be notified in writing and the employer must instruct you on how to challenge the accuracy of the information in your report.
That's precisely why the FTC suggests that people check their credit reports at least once a year. Right now, it can cost between $10 and $15 to request your report from one of the three major credit reporting agencies: Equifax, Experian and Trans Union. However, according to the Fair and Accurate Credit Transitions Act of 2003 (or FACT Act), soon all consumers will be entitled to a free copy of their credit report every 12 months.
Many companies use credit checks only for certain types of positions. According to Shelly Gillis, vice president and Bancorp recruiting director for Fifth Third Bank, credit checks are part of "an employment policy for high-risk areas." Fifth Third makes inquiries into potential employees' credit history about 20 percent of the time, she said. The policy is concentrated into four major areas the bank has deemed high risk (she declined to disclose the areas).
"These are small departments with very low turnover," she said, but it's crucial in the company's efforts to minimize risk. They are looking primarily for open collections, past-due amounts and charge-offs. "We have a responsibility to our customers to mitigate the risk," Gillis said.
A situation like Fifth Third's is common -- not all companies use credit checks to screen every candidate for every job. It takes time and resources that smaller companies might not be willing to expend. It's hit or miss among recruiters, said Heather Neesham, president of Rightbrain Recruiting, a 2-year-old recruiting company specializing in design and advertising placements.
"Once a company or a recruiting agency gets established, they may have the resources," she said, but often they leave it up to the clients.
At Management Recruiters International (MRI), credit checks are done only if the client requests it. Bill O'Reilly, president and CEO of MRI Sales Consultants of Cincinnati in Sharonville, said he is seeing more credit checks, but background and criminal checks are still much more popular. MRI will perform a credit check only if the client requests it, which is about 5 percent to 10 percent of the time, O'Reilly said.
There are very legitimate, practical reasons behind credit checks for many positions, he said. "Bad credit could be problematic for someone in sales, especially someone traveling."
A common sales scenario requires an employee who is traveling to charge things like hotel bills, airfare and meals and then request reimbursement. An employee who is not able to charge while traveling because of bad credit could present a real problem.
As technology makes it easier than ever to check, the trend toward credit checks as part of the employment screening process will no doubt continue, said Hurlburt.
"It's not just about loans anymore," she said. "Our credit is impacting every aspect of our lives now."
Managing Money: Taxes, penalties vary between traditional IRA, Roth
The value of saving is something you've probably been aware of ever since you were a kid. And while it may put a bit of a crimp in your finances right now, remember that eventually you will retire from working and will no longer have that regular paycheck.
When that time comes, those savings will really come in handy as you look to finance your retirement years.
To help you save for your golden years, the government has come up with several savings options. Individual retirement accounts, better known as IRAs, give you tax incentives to put away money into your own personal retirement plan. To set up and contribute to an IRA, the main requirement is that you have some form of earned income.
A little bit of a history lesson may also help you understand these accounts better. President Gerald Ford signed the Employee Retirement Income Security Act (ERISA) in 1974 to encourage personal savings.
The IRA was born out of this act. You may have heard of a Roth IRA. This variation of the original plan was introduced in 1998 and named after Sen. William Roth of Delaware. He is the one who introduced this plan to Congress, and it was designed to help middle-income individuals and families save for retirement.
Both types of IRAs are funded with your own money, which you contribute after paying income taxes. But if you're not already covered by a retirement plan at work, or if you fall within certain income limits, you may even be able to deduct your traditional IRA contributions from your taxes. The biggest difference between the two types of accounts has to do with taxes when it's time to take your money out.
The traditional IRA gives you the advantage of tax-deferred earnings, which means you don't pay any taxes until you decide to withdraw funds from the account. The Roth IRA, on the other hand, offers the potential of tax-free withdrawals. This means you won't have to pay taxes when you take the money out, provided you have reached age 591/2 and you have had the account for at least five years.
If you save money in either a traditional or a Roth IRA, you do have to be aware of certain penalties and restrictions. Early withdrawals — taken prior to age 591/2 — are generally subject to a 10 percent IRS penalty tax (figured on principal).
There are a few exceptions to this penalty, such as allowing you to use IRA withdrawals to pay for catastrophic medical expenses, buying your first home, or paying for a child's education.
Waiting too long to take your money out can hurt you too. If you've got a traditional IRA, when you reach age 701/2 you must begin taking mandatory distributions, which are set according to an IRS schedule based on life expectancy. Roth IRAs do not have mandatory distributions during your lifetime.
Keep in mind, there is a cap on the amount you can put into an IRA each year. For 2004, the maximum you can contribute is $3,000. If you're 50 or older, you can put in an additional $500, bringing the total amount to $3,500. This additional amount is referred to as a "catch-up" contribution, to help those who may not have saved earlier in life.
No matter which type of IRA you decide to use, the most important step in planning for your retirement is to begin saving money. Whether you still have a ways to go before you get there, or even if retirement is just around the corner, you'll see a much brighter retirement picture if you've taken the time to plan ahead.
This is not a commitment for a loan or an ad for credit as defined by paragraph 226.24 of regulation Z.