An unemployed banker and father who is having trouble finding work has lost his home and finds himself in a heap of credit card debt just so he can feed his family. He applies for a job that he’s perfectly qualified for, but gets rejected because the employer did a credit check and his low credit score disqualified him from the position.
Across town, a recent graduate with tremendous qualifications enters the workforce with an above average amount of student debt. Also, to be responsible, she never so much as tried to open a line of credit to pay for her expenses while in school. Unfortunately, despite having actual work experience and tremendous grades, she can’t even get an interview as an accountant purely on the basis of her poor credit score.
When I hear or read about stories like this it makes me sick to my stomach. It’s hard to improve your credit score without income, and it’s harder to get a job with a low credit score. The system seems rigged. But you know what the honest truth is? Credit reports aren’t a perfect measurement of responsibility. So the question is: should employers even be able to use it?
It’s more common than you’d like to think.
According to a study in 2010: about 60% of companies polled did credit background checks for prospective employees. Another study from about a year earlier found that 1 in 10 employers said they’ve disqualified candidates based purely on credit scores.
It’s much more prevalent for some positions than others, however. For example, jobs that fiduciary or financial responsibility, credit checks were conducted 91% of the time. For health care positions where a person had access to drugs, on the other hand, it was used only 3% of the time. [Source]
It’s also a quickly growing trend. Perhaps more concerning, is that the poor state of the economy, particularly the job market, is partially a driving force behind the trend. As if the recession didn’t make it hard enough to get a job…
Petitions to restrict or ban the practice
A number of attempts to outlaw the practice of employment credit checks have been attempted to a varying degree of success. In 2009, the equal employment for all act (H.R. 3149) was introduced to congress looking to restrict the practice nationally except in rare circumstances (like accounting or banking institutions). The bill failed and was later killed (sent to committee). In Oregon, a bill that was modeled after H.R. 3149 passed and has been in effect just short of 2 years now. Oregon isn’t alone, however. At least 25 states have debated similar resolutions.
There are also current efforts to gain support for renewing discussions on such restrictions on a national level. To date, the petition has over 135,000 signatures and just passed 100,000 only two days ago. It asks potential signers to join them and:
“25 national civil rights organizations in calling on TransUnion to stop its sale of credit reports to employers.”
A suggestion for employers:
As an employer myself, I understand the temptation to use something like a person’s credit history to determine their responsibility – especially if that person will be handling company finances in any way. But you have to be careful not to rely too heavily on these things without the proper context.
Using credit scores to create a minimum requirement (as opposed to deeper analysis of credit reports) leads to such a lack of context. There are a number of acceptable reasons why a persons score doesn’t accurately reflect their responsibility with money: lack of history, recent loss of income, identity theft (to name a few).
If employers are going to do a credit check on candidates, they need to be able to properly analyze the complete reports to get a better idea of what may have caused a poor score. If you understand what you are looking at, you should be able to pick out those whose credit scores are low through no fault of their own. And who knows, if employers used credit reports more responsibly, and not punish those who’s poor credit is no fault of their own, people wouldn’t be calling for a ban of the practice.
Advice for job seekers:
While it can sometimes seem like an unfair requirement, it’s not as though there’s nothing that can be done about it. Be proactive about your credit history:
- Check your own credit reports first for errors or blemishes
- Pay down credit cards and other revolving debt as much as possible
- Establish a positive credit history – no time like the present!
- Get current on bills and make payments on time
Is it ethical?
While it’s hard to defend those who misuse credit scores and reports for employment decisions, that doesn’t mean I believe it can’t be used responsibly. There are circumstances where credit reports can provide a telling sign that a person is not responsible enough with money to be trusted to handle it. But what we can’t allow, is for a system that makes those with debt (of any kind) at a general disadvantage for getting out of debt.
That is a huge problem.