Banks and credit card issuers aren’t the only ones who use your credit to make a decision about you. Prospective employers also look at your credit report to decide whether to hire you for a job.

You probably don’t want to hear that your credit history could be used against you in your employment search. But, if there’s a bright side it’s that you won’t be blindsided about an adverse credit decision. The Fair Credit Reporting Act requires employers to get your written permission before accessing your credit report. And, if that employer decides not to hire you, then you can get a free copy of the credit report that influenced the decision.

Many employers now request credit report information – 13% for all jobs and 47% for select jobs according to a November 2010 survey by the Society for Human Resource Management. Most employers who check credit do so for positions with financial responsibility, executive positions, or those positions where the employee would have access to confidential employee information (e.g. social security numbers).

Another piece of good news from SHRM: credit history isn’t one of the major pieces of information used to select candidates. Instead, your credit history might later be used when the employer is narrowing down a group of candidates or after they’ve given you a contingent job offer. Medical debt and foreclosures will seldom be used against you. And you may have the opportunity to explain why certain negative information appears on your credit report.

Employers aren’t judging you based on whether you have good credit or bad credit. They don’t have access to your credit score, the number that “grades” your credit report information. Instead, employers review your credit report to see if there are any negative items that could affect your job performance. For example, from an employer’s perspective, a candidate with a lot of bad debt may pose an embezzlement risk.

Consumer advocates have spoken against the practice of using credit as a hiring factor for years. A New York Times editorial quotes a TransUnion representative as saying there’s no research supporting a correlation between credit report and job performance or likelihood to commit fraud.

A bad credit history makes applying for a job a Catch-22 - how can you improve a bad credit history if you can’t get a job because of your bad credit history.

The government could have put an end to employment credit checks. In 2009, the Equal Employment for All Act, H.R. 3149, was introduced to Congress. If passed, the bill would have amended the Fair Credit Reporting Act and would have ended most employment credit checks. However, the bill died in Committee and was never put to a vote.

When an employer lets you know they’ll be performing a credit check as part of the background check, that’s the time to explain your circumstances. If you have negative items on your credit report, be honest about what the employer might find and give some background on what happened. If you don’t know what’s on your credit report, you can find out for free by ordering your reports through AnnualCreditReport.com. The Fair Credit Reporting Act also allows you to get a free credit report if you’re unemployed and plan to job hunt within the next 60 days. Order that credit report free through the credit bureaus.

Sources: Federal Trade Commission, GovTrack.us, Society for Human Source Management, New York Times