Why bad credit is bad for the financial profession

When obtaining a loan or lease agreement, maintaining a good credit history can not only provide you with low interest rates. It will also help when you want to pursue a career in the financial industry.

Even if potential brokers have the motivation, determination and ability to pass the exam administered by the Financial Industry Regulatory Authority (FINRA), such as Series 6 or Series 7, there is no guarantee that they will become licensed representatives or even be employed by broker-dealers. In order to obtain and maintain a career in the financial industry, it is also important to have a clean credit report.

Please note that the following states restrict the employer’s right to check your credit report: California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington.No employer can check your credit score without your written consent, which is different from your report, except for the trucking industry.Your report does not include scores.

Key points

  • In order to maintain a career in the financial industry, it is important to have a clean credit history, because employers in certain jurisdictions have the right to check your credit report.
  • Poor credit history or bankruptcy may indicate fraud, inability to manage funds properly, a reflection of poor character, and cause damage to the company’s reputation.
  • FINRA requires all registrants to disclose any bankruptcy applications that have occurred in the past 10 years.
  • Employers usually check personal credit card balances and legal judgments in their credit reports.
  • Individuals should always check their credit reports, correct any errors, and provide explanations for any unfavorable materials.

Why is your personal credit history a factor?

There are four main reasons for a bad credit history or bankruptcy filing related to the recruitment and registration process:

  1. It is generally believed that bankrupts may be more inclined to engage in fraudulent activities to earn a living.
  2. There is a school of thought that if a person encounters difficulties in managing their own funds, that person may not be competent to manage client funds.
  3. Many employers believe that poor credit ratings or the existence of bankruptcy proceedings are a reflection of poor conduct or poor judgment.
  4. Since bankruptcy applications are publicly available through the FINRA BrokerCheck system, the company may wish to avoid hiring individuals whose credit history may harm the company’s reputation, as it will give existing or potential customers the impression that the company’s employment standards are lax.

FINRA requirements for bankruptcy

Any individual who applies for (or transfers) registration to their state or self-regulatory organization is obliged to disclose on Form U4 personal bankruptcy petitions that have occurred in the past 10 years. If you are currently registered or have filed for bankruptcy, this requirement also applies, because it is your responsibility to ensure that all information on the U4 form is up to date.

Although this is not an automatic disqualification, if someone filed for bankruptcy protection in the past 10 years, they may be denied registration. In addition, if you neglect to disclose detailed information about bankruptcy, FINRA may take disciplinary actions; including the possibility of prohibiting you from engaging in the securities industry. This includes situations where bankruptcy occurred after the initial registration and the registrant’s U4 form has not been updated.

What’s in the credit report?

Employers tend to check some items in personal credit reports carefully for a long time, including credit card balances and legal judgments.

  • Credit card balance: Employers not only look at the number of outstanding credit cards owned by potential employees, but also look at the average time it takes for individuals to repay these debts. In addition, the report will detail any other bills or debts that potential employees have not repaid, including first mortgages, home equity loans, personal loans, and lines of credit. The idea is to understand whether potential employees will eventually represent the company in a professional way.
  • Legal judgments: In addition to credit cards and loans, future employers will pay close attention to any (adverse) legal judgments made against future employees in the past seven years (this is the time period covered by most credit reports). Employers will combine these judgments to find Any large debts, and any indications about how and why individuals took on these debts.

Why are judgments and legal procedures so important? Because the details of such litigation often reveal the nature of a person’s character. With this in mind, most employers want to know whether the specific judgment or debt stems from a minor misunderstanding or a serious criminal activity, so please be prepared for these questions during the interview.

Resolve credit history issues before the interview

In some cases, bad credit records can be amended before the interview, and your history may be questioned. Here are a few steps to follow:

  1. Individuals should review their credit report at least once a year. (To obtain your credit report, just contact the three major credit bureaus: TransUnion, Experian, and Equifax.) Also, please pay special attention to any inaccuracies, such as debts listed as outstanding but actually paid off. In addition, look for any judgments that may have been satisfied or misinformation about your ability to repay debts in a timely manner.
  2. If you do find an error, please contact the credit bureau immediately and ask for the error to be corrected. Be sure to check the website of your respective credit bureau for instructions on submitting an error notification. In most cases, you need to contact the creditor who made the mistake, and then submit this information to the credit bureau.
  3. Use the comments section at the bottom of your credit history. Use this area to explain why you assumed the debt in the first place and what steps you are taking to improve your financial situation.

These actions will be of great help in solving any problems that may arise during the actual interview process.

Explain poor credit to potential employers

If the details of your credit report are presented during the interview and you cannot correct the problem before the interview, then your next strategy is to detail what you are doing to repay the debt.

More specifically, you should be prepared to show evidence (in the form of a receipt or payment confirmation) that the debt is being paid or that you have sufficient income or assets to eventually repay the debt.

If employers plan to deny your job based on your credit report, they must warn you before doing so. They need to send a “pre-adverse notice” and wait a certain amount of time for you to fight back by explaining or correcting the problem.

In other words, prove to your employer that you are financially solvent and able to manage your affairs. This will greatly help prove that you are a trustworthy and responsible person.

In addition, prospective employees should carry a hard copy of their credit report with them to show prospective employers exactly which debts are outstanding and which have been settled. This will help avoid any confusion or misunderstanding.

Finally, let’s be honest. If the employer thinks you are lying or can prove that you are lying, you will not be considered for the position.

Bottom line

An individual’s credit history is relevant during the registration and interview process. To this end, prospective employees should understand the above-mentioned FINRA regulations on bankruptcy and the credit history that employers will consider when deciding whether to provide a job opportunity.


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