Why Bad Credit Is Bad for Financial Careers

Even if a would-be broker has the drive, determination, and ability to pass exams administered by the Financial Industry Regulatory Authority (FINRA), such as the Series 6 or Series 7, it doesn’t guarantee that they will become a licensed representative or will even be hired by a broker-dealer. There’s one missing piece: a clean credit report.

Key Takeaways

• Employers in certain jurisdictions have the right to check your credit reports.
• FINRA requires all registrants to disclose any bankruptcy filing that occurred within the past 10 years.
• You should regularly check your credit reports and dispute any errors.
• You should also be prepared to provide explanations for any adverse material in your credit reports.

What Can Employers Check?

Maintaining a good credit history will do more than provide you with low interest rates when obtaining a loan or lease agreement. It will also help when you start applying for jobs in the financial industry.

No employer can check your credit score, which is different from your report, without your written consent, except in the trucking industry. Your report does not include a score.

Note that the following states limit an employer’s right to check your credit report: California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington.

Why Is Your Personal Credit History a Factor?

There are three main reasons why a poor credit history may be relevant in the hiring and registration process:

1. Some employers believe that if a person has trouble managing their own money, that person may not be able to competently manage clients’ money.
2. Some employers feel that a bad credit rating or the existence of a bankruptcy proceeding is a reflection of poor character or poor judgment.
3. Because bankruptcy filings are publicly available through the FINRA BrokerCheck system, firms might want to avoid hiring an individual whose credit history could harm the firm’s reputation by giving existing or potential clients the impression that the firm has lax standards of employment.

FINRA’s Requirements Regarding Bankruptcy

Any individual applying for or transferring registration with their state or self-regulatory organization has an obligation to disclose a personal bankruptcy filing that has occurred within the past 10 years on Form U4. This requirement also applies if you are currently registered or have applied for bankruptcy because it is your responsibility to ensure all information on Form U4 is up to date.

Although it is not an automatic disqualifier, a person may be denied registration if they have filed for bankruptcy protection within the last 10 years. Also, should you neglect to disclose details regarding a bankruptcy, FINRA may impose disciplinary action, including potentially barring you from the securities industry. This includes cases where a bankruptcy is incurred after the initial registration and a registrant’s Form U4 is not updated.

What’s in a Credit Report?

There are a few items on an individual’s credit report that employers tend to look long and hard at, including credit card balances and legal judgments.

• Credit Card Balance: Employers look not only at the number of cards the prospective employee has outstanding, but also at the average period of time it takes for the individual to satisfy those debts. In addition, the report will detail any other notes or debts that the would-be employee has outstanding, including first mortgages, home equity loans, personal loans, and lines of credit. The idea is to get a sense of whether a potential employee is a person who will ultimately represent the company in a professional manner.
• Legal Judgments: In addition to credit cards and loans, the prospective employer will look closely at any (adverse) legal judgments that have been rendered against the prospective employee over the last seven years, which is the period of time that most credit reports encompass. Employers look for any large debts in conjunction with these verdicts, as well as any indications of how and why the individual may have incurred those debts.

Why are judgments and legal proceedings so important? Because the details of such proceedings tend to reveal the essence of a person’s character. With that in mind, most employers will want to know whether a specific judgment or debt originated from a minor misunderstanding or from serious criminal activity, so be prepared for those questions during the interview.

Combating Credit History Issues Before the Interview

In some cases, bad credit histories can be amended prior to an interview where your history might be questioned. Here are a few steps to follow:

1. Individuals should review their credit reports at least once each year. In order to obtain your credit report, simply contact the three major credit bureaus: TransUnion, Experian, and Equifax. In addition, look specifically for any inaccuracies, such as debts that are listed as outstanding but are actually paid off. Also, look for any judgments that may have been satisfied or erroneous information about your ability to repay debts on a timely basis.
2. If you do find errors, contact the credit bureau immediately and ask that the errors be corrected. Be sure to check your respective credit bureau’s website for instructions regarding the submission of notice for an error. In most cases, you will be required to first contact the creditor that made the mistake and submit this information to the credit bureau.
3. Take advantage of the commentary section at the bottom of your credit history. Use this area to explain the circumstances of why the debts were taken on in the first place as well as what you are doing to improve your financial situation.

These actions will go a long way toward stemming from any questions that may otherwise arise during the interview process.

Explaining Poor Credit to a Prospective Employer

If the details of your credit report are brought up during the interview process and you were unable to correct issues before the interview, your next strategy is to explain in detail what you are doing to repay your debts.

More specifically, you should be prepared to show evidence (in the form of receipts or payment acknowledgments) that the debt is being repaid or that you have sufficient income or assets to ultimately satisfy the debt.

Important

If an employer is planning to turn you down for a job based on your credit report, they are required to provide you with a warning before doing so. They are required to send a “pre-adverse notice” and wait a certain amount of time for you to counter by either explaining the issues or correcting them.

In other words, prove to the employer that you are financially solvent and are able to manage your affairs. This will go a long way toward proving that you are a responsible individual who can be trusted.

Also, prospective employees should keep a hard copy of their credit reports handy to show the prospective employer exactly which debts are outstanding and which have been settled. This will help to avoid any confusion or miscommunication.

Finally, tell the truth. If the employer thinks you are lying or is able to prove that you are lying, you will not be considered for the position.

What’s a Credit Report?

A credit report is a document that lists information from your creditors, such as student loan companies and credit card companies.

What Are Credit Reports Typically Used for?

Most lenders and credit card companies will use your credit report when assessing your credit-worthiness.

What Is the Average Credit Score?

The average credit score in the U.S. is 705, according to VantageScore data from March 2024.

The Bottom Line

An individual’s credit history is relevant in both the registration and the interview process. To that end, prospective employees should be aware of the aforementioned FINRA rule regarding bankruptcy as well as what employers look at in terms of credit history when determining whether to extend an offer of employment.