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Thread: Bad credit sidelines some jobless workers

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    Default Bad credit sidelines some jobless workers

    Bad credit sidelines some jobless workers - Eye on the Economy- msnbc.com

    Temporary financial setback can become a long-term employment barrier
    By John W. Schoen
    Senior producer
    updated 5:07 a.m. AKT, Tues., Feb. 23, 2010


    Three years ago, after working as a temporary data entry clerk and receptionist for a Los Angeles skin care company, Debra Banks was pleased when her manager offered her a full-time job.

    “I thought I was in for sure,” said Banks, 54. “I was getting praise about how hard I worked. I was pretty committed there because I thought I was going to get a full-time job.”

    There were just a couple of formalities, including a check of her credit history.

    “My heart dropped,” said Banks, who has no health insurance and a large unpaid medical bill. When the results came back, she said, the manager gave her the bad news. "Tomorrow’s your last day.”

    Employers’ growing reliance on credit checks when screening new hires is turning out to be bad news for millions of jobless Americans. Losing a job can often mean trouble paying bills for many unemployed people. And the damage done to their credit history increasingly can become a barrier to finding another job, touching off a vicious downward spiral.

    “I understand a background check,” Banks said. “But I can’t see how your credit relates to your work. I had more than proved my worthiness as an employee. I didn’t steal anything. I didn’t cheat. I didn’t do anything wrong.”

    There are no hard numbers on how often poor credit reports thwart someone's effort to find a new job. Many applicants will never know; employers aren’t required to explain why a candidate was turned down for a job.

    But a recent survey by the Society of Human Resource Management found that many employers use credit checks to screen job candidates. Of the roughly 350 employers who responded, 60 percent said they checked credit histories for some or all job applicants. That’s up from 43 percent in 2004 and just 25 percent in 1998.

    Credit checks are used most frequently when hiring senior executives, workers with financial responsibilities or access to cash, and workers who would have access to confidential information about other employees, according to the survey.

    The conventional wisdom in using credit histories in hiring decisions is that a bad history of paying bills is a pretty good indicator of an employee’s reliability.

    And if a new worker is to have access to large amounts of company cash or financial systems, it’s only prudent for a hiring manager to find out if the applicant has a pile of unpaid debts, said Lester S. Rosen, CEO of ESRcheck, which screens job candidates for companies.

    “If an employer hires an embezzler and did not do a credit report in a sensitive position and the employer was then sued for negligent hiring, the argument would then be: ‘How stupid were you for not to running a credit report?’” he said.


    Checking credit as part of the hiring process apparently has become more widespread for several reasons. Where prospective employers once relied on detailed references from an applicant’s former managers, many companies — fearful of getting sued for providing a negative reference — have become reluctant to provide more than basic information, like the dates and description of a former worker’s job.

    Yet the increased scrutiny of credit histories comes while a record 6.4 million Americans have been unemployed for more than six months. Such long-term unemployment can do serious damage to personal credit.

    Many also face the expiration of unemployment insurance; unless extended by Congress, some 5 million people will run out of benefits by June, according to the National Employment Law Project.

    The credit crunch has also battered the financial records of consumers who have never been late on a bill. As lenders have cut back credit limits unilaterally, some card holders have been caught owing more than their new, lower limit.

    “There’s been absolutely no change in that person’s behavior, no change in their circumstances,” said Paul Leonard, director of the California office of the Center for Responsible Lending. “The change was made by the credit allocation decision of the credit card companies.”


    The surge in home foreclosures since the collapse of the housing market has also sent millions of otherwise job-ready applicants into bad-credit limbo. Identity theft or divorce can also render a job seeker unemployable.

    Critics of the practice argue that there is little research correlating bad credit with good job performance.

    “There is no science, there is no evidence that supports the idea that an applicant’s credit history is reflective of a person’s propensity to steal or their suitability for employment generally,” said Adam Klein, an employment lawyer at Outten & Golden in New York. “These are basically unrelated concepts. ... It would be like asking for hat size or if you can sing on pitch.

    In some cases, a job candidate with bad credit could even turn out to be a better worker, critics like Leonard argue.

    “The simple case is somebody who has lost a job and suffered damage to their credit score,” he said. “They’re going to be a more motivated and inspired employee than somebody who hasn’t because they need the income more.”

    Under current law, employers can access any job applicant’s credit history, with some restrictions. The reports made available to employers don’t include the applicant's age or credit score, for example. Job candidates have to be notified of the credit check and give their permission to access their credit data. And if you’re turned down for a job explicitly because of bad credit, the employer has to give you a copy of the report.

    Employment screening consultants caution that credit histories should be used sparingly — in part because, as many consumers have learned the hard way, the information in a credit history isn’t always reliable. Credit agencies themselves routinely caution anyone using their reports that the information may be inaccurate or out of date. But correcting an error can take 30 to 60 days — long after an employer has made a hiring decision and moved on.

    Though many employers run credit checks on some applicants, relatively few are turned down for a job because of bad credit, according to Rosen of ESRcheck.

    “It’s only when they’re down to a finalist or one or two finalists that they’ll run a background check,” he said. “And in the real world, what we see is that it really takes something pretty horrendous in the credit report to reverse a decision that they’re vested in.”

    But critics of the process say the information provided in a credit report is being used too broadly and shouldn't be available to all employers for all job applicants.

    The use of credit reports in hiring decisions also faces a legal challenge on the grounds that it discriminates against minorities and other groups that have lower-than-average credit scores.

    In a suit filed last September in Baltimore, the Equal Employment Opportunity Commission charged a corporate marketing company, Freeman, with unlawful discrimination by refusing to hire black job applicants based on their credit history.

    The Commission argues that because the practice has a “significant disparate impact” on black applicants, it is a violation of Title VII of the Civil Rights Act of 1964. The case is pending.

    Proposals to ban the use of credit histories in job screening have been introduced in several states and in Congress, but the measures face an uphill battle. Last fall, California Gov. Arnold Schwarzenegger vetoed a bill that would have sharply limited the use of credit histories to job candidates who would have access to large amounts of cash or confidential financial information, among special situations.


    In July, Rep. Stephen Cohen, D-Tenn., introduced a bill in the House, H.R. 3149, that would amend the Fair Credit Reporting Act to ban the use of credit checks in the hiring process. The bill would carve out exceptions for work involving national security clearance or some jobs in the financial services industry.

    Cohen say he doesn’t believe a bad credit history should reflect negatively on a job applicant.

    “That might have been the case in a different economy, but not in this economy,” he said. “If you’re laid off and you don’t have a job, you don’t have an income and you can't meet your obligations."

    But despite the support of 51 co-sponsors, the bill is stuck in committee and hearings haven't been scheduled. Cohen concedes the measure faces strong opposition.

    “The credit agencies are against it,” he said. “It’s part of their business. They’re making money out of it. They want to do as much credit reporting as they can.”

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    Elite Member Grimmlok's Avatar
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    i fucking hate credit checks for employment. it should be fucking illegal.
    I am from the American CIA and I have a radio in my head. I am going to kill you.

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    Elite Member kingcap72's Avatar
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    And this is one of the reasons why I've been trying to pay off a lot of debt. It's hard enough trying to find a job without having bad credit screw you up before you can get a foot in the door.

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    Elite Member Lenny's Avatar
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    This sounds fucking retarded.
    What about students who have a shitload of debt from college. Will they never get a job because they got education?

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    Elite Member KandyKorn's Avatar
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    This is such bullshit. I didn't apply to any jobs that required a credit check, they have NO RIGHT or NEED for that information. It should be illegal.
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    I remember we had this discussion once before and I don't think it was ever really explained why a credit check is necessary. And quite frankly, after the last few years I'll guess there are a hell of a lot of people with dodgy credit histories.
    'Those who sacrifice liberty for security deserve neither.' Ben Franklin

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    With a few exceptions, it should be illegal for companies to do credit checks for employment.

    This is one more example of how corporations have too much control. (I wonder why the tea baggers aren't saying anything about this.)

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    I agree that coprorations have too much control. Where do they get the right to check credit history if the job does not entail anything to do with finance? It goes along the lines of HMO's demanding people take tests to see if they carry a breast cancer gene or some other gene that might, possibly, if the stars all align, cause that person to develop an illness. It's all getting a bit out of control.
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    I think it's ok if you're in finance or banking and handling other people's money but not for every job.

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    Unfortunately, with high unemployment and limited jobs, a lot of companies are relying more on credit histories to try to piece together a 'profile' of what kind of employee they think you'll be.

    The think that if you're carrying a lot of bad debt, or you're consistently late with payments, it means you're an irresponsible/unreliable person, regardless of your resume or references. It's ass-backwards.

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    If you are trying to get a job that requires a government clearance (Secret, Top Secret, etc.), this is a huge issue, and always has been.

    Considering the vast wasteland this economy has created with so many people's personal finances (and through no fault of their own), I can't see why commercial companies are using it as a litmus test.

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    We were just talking about this on a listserv I belong to for freelance medical writers. Apparently it's becoming more common for employers to do credit checks, even for freelancers. That is such bullshit.

    Especially given that almost every freelancer I know has war stories about CLIENTS who won't pay up.

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    Elite Member Little Wombat's Avatar
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    There's no question that credit checks are necessary for government security clearances, and for jobs involving company money, it certainly makes sense. But for a receptionist position???

    I'm getting the impression that now that any company can purchase someone's credit history, that they think they're entitled to know and that they're just as important as government jobs that reasonably require it. But they're not. Knowing the receptionist's credit history isn't vital to the health or liability of the company.
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    IMO, cost cutting has been a great motivator for the trend toward using credit reports.

    Corporate America is run by bean counters these days - why pay for an employee to check references and employment histories when it's really cheap to simply run a credit check? There is no way for the bean counters to measure the value of a real reference check vs. a useless credit report, but it is really easy to measure the cost.

    It's the same motivation as downsizing - it's hard to measure an employee's value, but it is simple to measure the cost. Of course the major flaw in all of these exercises is that the bean counters can't measure the intangible costs of the actions, so they simply ignore those.
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