The challenges of owning and running a business are even steeper for people with a criminal record, a problem illustrated by the exclusion of many from last year’s Paycheck Protection Program.
Having a criminal record can make getting credit more challenging. You can still get loans and credit cards, though, even if you have a guilty plea. This article will talk about how having a criminal record affects your credit, what you can do to improve your chances, and other ways you can get credit if you’ve already been turned down.
How Criminal Records Impact Credit Scores
Your credit report contains information about your payment history, amounts owed, length of credit history, types of credit used, and new credit inquiries. It does not specifically list criminal convictions. However, a criminal record can still negatively impact your credit in a few key ways:
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A bad payment history means that you may have missed or late payments that hurt your score if you had money problems before, during, or after your arrest and conviction. Court fines and fees that aren’t paid can also be sent to collections.
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Closed accounts: If you are found guilty of fraud or writing bad checks, your lenders may close your accounts. This can shorten your credit history and limit the amount of credit you can get.
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Bankruptcy – Those with a criminal record are more likely to file for bankruptcy, which stays on your report for 7-10 years.
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Civil judgments – If you are ordered to pay restitution or damages in a civil lawsuit related to your crime, an unpaid judgment hurts your credit if it gets reported.
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Flagged for fraud—If your identity was used in a crime, credit bureaus may put an identity fraud victim alert on your file. This makes it harder to open new accounts.
So while your conviction itself doesn’t show up on your report, consequences like the above can indirectly lower your credit score.
Tips for Improving Your Credit with a Criminal Record
Don’t lose hope if you have a criminal record and bad credit. Here are some proven ways to rebuild and improve your credit over time:
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Pay all bills on time – Set up autopay and reminders to avoid missed payments. Paying on time every month will steadily increase your score.
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Lower balances – Keep credit card balances low compared to limits. High balances hurt scores even if you pay on time.
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Dispute errors – If your credit report contains mistakes or fraudulent accounts, submit disputes to get them corrected or removed.
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Become an authorized user – Ask a friend or family member with good credit to add you as a user on their credit card. Their history can help yours.
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Limit new accounts – Apply for new credit sparingly, as too many inquiries from applications will lower your score temporarily.
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Consider credit counseling – Non-profit credit counseling services can help you manage debt and develop a payment plan.
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Expunge criminal record – Sealing, expunging, or pardoning your record can lead to removal of negative information tied to your conviction.
With diligence and patience, these strategies make it possible to achieve a 700+ credit score within a few years, even after a criminal conviction.
Applying for Credit with a Criminal Record
When applying for credit like loans, mortgages, or credit cards, lenders will likely ask about your criminal history. Here’s how to navigate applications to improve your chances of approval:
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Answer all questions honestly to avoid denial for false information if they conduct a background check. But only provide what is specifically asked for.
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Highlight positive factors like steady income, employment history, and on-time rent payments in your application.
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Provide context if asked about specific charges. Explain how the situation was a one-time mistake and does not define you.
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Ask the lender in advance what types of convictions are dealbreakers or require exceptions to understand your chances.
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Apply with lenders who consider applicants on a case-by-case basis, looking at creditworthiness holistically.
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Have a qualified co-signer with good credit apply alongside you. Their credit can outweigh your criminal record’s impact.
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Be prepared to start with a secured card or loan requiring a deposit, then upgrade to unsecured credit after demonstrating responsible use.
Alternative Credit Options
If you are denied traditional credit, don’t panic. There are alternative options to help establish your creditworthiness:
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Secured credit cards – These require a refundable security deposit and help build credit like regular cards.
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Credit builder loans – Make payments toward a savings account for 6-24 months, then receive the money back as a credit history demonstration.
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“Rent reporting” services – Pay a fee to have positive payment history on utilities, rent, or other bills reported to credit bureaus.
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Non-traditional lending – Online lenders and community development groups may offer loans tailored for those rebuilding credit.
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Credit union second chance programs – Many credit unions work with members to re-establish good standing after past difficulties.
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Secured personal loans – Some lenders provide personal loans using your car title, savings account balance, or other collateral as security.
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Credit-building services – Companies like Self Lender or Credit Strong allow you to take out a CD-secured installment loan and make payments to yourself over time.
With alternative options like these, you can still demonstrate responsible use of credit and work your way back up even if unable to qualify for traditional financing. The path may take longer, but credit access is possible despite having a criminal record.
Summing It Up
A criminal conviction can negatively impact your credit score and make getting approved for new credit more challenging. However, by maximizing positive payment factors, carefully applying to sympathetic lenders, providing context on past mistakes, and leveraging alternative credit-building services, you can still gain access to the credit needed to move forward in life. It just may require some additional patience and effort. But even with a conviction on your record, the financial system still offers paths to demonstrate creditworthiness over time.
Published Jul 30, 2021
Many small businesses were forced to close or reduce operations because of COVID-19. When Congress passed the CARES Act in March 2020, the goal was for small-business owners to gain access to forgivable loans to cover payroll and other operating costs under the Paycheck Protection Program. However, 140,000 of the nation’s 1.1 million small-business owners with criminal records were shut out of the assistance.
After serving five years in prison for distribution of cocaine, Robert Sherrill knew that he would have trouble finding a good job when he was released. He got a job at a restaurant, but the pay was low, with no prospects for growth. So the now-37-year-old decided to start his own cleaning company. “It was something I did just so I could be able to take care of my family,” he said. Eight years later, Sherrill employs 22 people in Nashville, Tennessee, including 14 with criminal records.
Many people with criminal records like Sherrill decide to start small businesses because many companies won’t hire them. According to new research by the RAND Corporation, roughly 3.8% of small business owners have a criminal record — for comparison, about one-third of all American adults have a criminal record. While Sherrill’s new career is largely a success story, he is one of the lucky ones. Roughly half of small businesses with employees fail after five years. And having a criminal record only compounds the many challenges of being an entrepreneur. 1 in 3
Number of American adults who have a criminal record.
All business owners faced huge challenges when the COVID-19 pandemic forced them to shut down or massively reduce their operations. Sherrill had to let go more than 10 of his employees. But for business owners with previous involvement with the justice system, the pandemic proved to be yet another un-level playing field.
When Congress passed the CARES Act in March 2020, the goal was for small-business owners to gain access to forgivable loans to cover payroll and other operating costs under the Paycheck Protection Program. However, Sherrill applied in the first round but was denied. He learned that the Small Business Administration (SBA) was categorically excluding any business owners who had been convicted of a felony in the last five years or who had been charged and put on pretrial diversion, parole, or probation. Sherrill was not alone. According to the RAND report, 140,000 of the nation’s 1.1 million small-business owners with criminal records were disqualified from the original PPP because of these restrictions.
“I was upset,” said Sherrill, who had been pardoned by Tennessee’s governor in 2019 but applied for the loan before his federal charges were pardoned by President Donald Trump in January 2021.
In late June 2020, in response to pushback from advocates and a ruling in a federal lawsuit, the federal government announced it would no longer reject applicants because of criminal convictions.
“Not only did the SBA call me and have me sit on a panel to talk about it, I ended up re-submitting my request, and they approved it finally,” Sherrill said. “But I had lost half of my staff by that time.”
David Schlussel, deputy director of the Collateral Consequences Resources Center, said the SBA never fully explained the restrictions in the first round of the PPP or attempted to justify them, and “there are so many ways that the SBA excluded people from the opportunity to survive the economic fallout of the pandemic because of arrest or conviction history.”
Schlussel’s group, which promotes public discussion of the collateral consequences of conviction, is working on a Fair Chance Lending policy proposal to encourage government-sponsored loan programs that would support small-business owners with a criminal record instead of disqualifying them. They argue that while policymakers are increasingly supporting reintegration and fair chances for people who have completed their sentences, being barred from accessing business capital remains one way in which people with records are still held back.
Sherrill said the ordeal with PPP loans was just one example of the barriers faced by people like him, despite paying taxes and contributing to the economy
“I’m felon enough to pay my taxes but I’m not felon enough to get benefits from the same state I pay taxes to,” Sherrill said. “That doesn’t make sense.”
Another collateral consequence of a criminal record can involve restrictions on accessing capital to start a business.
After spending 18 years in prison, Minneapolis resident K.B. Brown knew his prospects for employment would be low. He had almost no credit or employment history and knew employers wouldn’t be eager to hire someone like him with a felony record. He eventually found a job at Chipotle, but the pay was low.
So the 46 – year-old began dreaming up a plan to open a print shop. Soon, he developed the idea for Wolfpack Promotionals, a printing business that would sell promotional and advertising materials to other small businesses from a central location in Minneapolis. “I figured entrepreneurship would be more welcoming than the employment area would be,” he said, “but I quickly found out that I was wrong.”
“We couldn’t get funding anywhere,” he said. “If you’ve been in prison over five years, you don’t have a credit history, our credit scores suck, we can’t get loans for starting a business.
“Essentially if you don’t have access to money or anyone who is willing to help you with the integral parts of starting a business, you’re stuck to clock-punching employment. Banks won’t even talk to us.”
His wife ended up taking a second mortgage on their home so they could have the money to launch the business together.
Brown suspected the SBA wouldn’t lend to someone with a felony record and he didn’t even try to seek out their loans. According to the Collateral Consequences Resource Center, the SBA and other government agencies treat criminal history as a credit risk, despite the absence of any evidence to support that conclusion or statutory requirement that they do so.
But for Brown, that thinking changed when the COVID-19 pandemic hit in early 2020. Brown’s business immediately suffered. He had been employing eight people in his shop in Minneapolis, but the shutdowns in China disrupted his supply chains even before the virus reached the United States. Then, when Minneapolis shut down, he was forced to let go of the majority of his staff.
Brown applied for a PPP loan and never heard back. Because Brown’s conviction was nearly three decades ago, he should not have been disqualified, but he assumed his conviction was why he was never awarded a loan.
“We’re denied everything,” he said. “Having a felony is an economic death sentence. It doesn’t matter if you start your own business or not. It’s an economic death sentence if you don’t already have money.”
Before he was incarcerated in federal prison for seven and a half years for bank fraud, Troy Parker owned an office cleaning business in Cincinnati. So when he was released May 2015 after serving his sentence, he knew what he wanted to do to restart his life.
“I had $500, so I incorporated, I got my liability and workers comp insurance, and I bought 500 business cards,” the 54-year-old said, explaining the origins of his staffing and cleaning company. “I started the business from the halfway house.”
“I saw so many returning citizens come back” to prison, he said. When he asked them what was happening, they often said they couldn’t find a job so they ended up using or selling drugs. That’s why Parker said he prioritizes hiring other returning citizens. Of his roughly 91 employees, Parker estimates that 85% have criminal records.
It wasn’t until he was profitable for more than three years that lenders started to take Parker and his business seriously. This year, Parker’s business is on track to earn $3 million in revenue, but his felony record continues to impede the growth of his business. When he applied for a bond to finance a project, he was unable to find an insurance company that would bond him because of his criminal conviction.
His experiences as a business owner have taught him how society views people with criminal records.
“In our society, they say you do the time and it’s forgiven, but it’s really not,” he said. “For a person who commits a crime, you pretty much live with it indefinitely.”
“You might do five years, ten years, one year,” he added, “but you pay for it until you’re in the grave.”
How to deal with a criminal record or poor credit during an interview process
FAQ
Do you need a criminal record to get a credit card?
Bonuses can be earned with many credit cards for purchases made. This allows for gaining valuable rewards. In applying for a credit card, most credit card companies do not inquire if an applicant has a criminal record. Their primary interest is in their credit rating. This is determined by obtaining a credit report.
Does a criminal record count against a credit score?
Only certain public records, such as judgments, tax liens and tax levies, count against a consumer’s credit score. Large or risky loans may result in the bank delving deeper into the applicant’s past than with most other lines of credit. Business loans usually require the borrower to have good character. This usually means a clean criminal record.
Can a criminal past make you not creditworthy?
If a criminal past makes you not creditworthy, you might be able to “hide” this information. The credit rating agencies are legally allowed to include criminal records when calculating credit scores, but they have had a longstanding practice to exclude them from reports and score calculations, according to the Privacy Rights Clearinghouse.
What if I have a criminal record?
A criminal record is usually a bad sign because it can show that you are not responsible or stable. The lender wants to make sure that you pay back your loan. Lenders can set up their own policies. Generally, lenders care more about your income, employment, and credit score.
Can you get a loan with a criminal record?
Obtaining a job, getting a house and even getting a loan can be extremely difficult and this can really take its toll, especially if your criminal record was for a minor offense several years ago. People who have a criminal record may have a very difficult time getting a loan from the bank.
Do felons have a criminal record when applying for a credit card?
Felons must remember that it is essential that they are honest about their criminal record when applying for a credit card. If not, they can easily put themselves in the position of being denied a credit card and for being charged with fraud for lying on their application.
Can a convicted felon get a credit card?
Most credit cards don’t ask about your criminal history, so if your income and credit score are sufficient, you should be fine. If you were released from prison not long ago and don’t have enough credit history, that’s the main reason I can think of for being turned down because of a criminal record.
Can a felony affect your credit score?
As a closing note, many people worry that a criminal record might affect their credit score. Convictions can impact creditworthiness by reducing employment opportunities and leaving people in high-cost housing situations. However, credit reporting bureaus typically do not report criminal convictions.
Can a felon build credit?
Under Proposition 57, CDCR has incentivized incarcerated people to take responsibility for their own rehabilitation by providing credit-earning opportunities for sustained good behavior, as well as in-prison program and activities participation.
Can you get a loan if you have a criminal record?
Lenders may hesitate before granting a loan if you have a criminal record involving felony or misdemeanor since it indicates financial instability or a …Sep 18, 2024.