Editorial Policy

How Credit Checks Can Trip Up Job Hunters

Eva Norlyk Smith Ph.D.

March 14, 2013

As many as one in two employers check an employee's credit history when hiring new employees — and not just those applying for high-level financial management positions.

That's according to a March 2013 study by the public policy group Demos, which concluded that widespread credit checks for potential hires create unfair barriers to employment for some demographics, particularly minorities.

Bad credit holds many back
The study, “Discredited: How employment credit checks keep qualified workers out of a job,” was based on a survey of 997 low- and middle-income American households with credit card debt. For those who were unemployed, one out of four had a potential employer check their credit report as part of a job application, and one in 10 had been denied a job because of information in their credit report. Among job applicants with bad credit, one in seven had been told that they had not been hired because of their bad credit history.

Even more concerning, credit checks aren't necessarily limited to those with oversight of a company's money — applicants for entry-level positions doing maintenance, customer service and office assistant work said they were required to undergo credit checks.

The upshot of this practice is that many Americans are being shut out of job opportunities, according to study author Amy Traub, a senior policy analyst at Demos. African-American and Latino households tend to have worse credit than white households, so these population groups are more likely to be screened out of jobs, resulting in discriminatory hiring.

“If an individual has come upon hard times, especially in this economy, it can be a Catch-22,” says Beth Givens, director of the Privacy Rights Clearing House, a nonprofit consumer advocacy organization based in San Diego. “Individuals who are already down on their luck shouldn't be further disadvantaged because of a poor credit history.”

According to Traub, the few academic studies done on the topic have found little or no connection between what's on a person's credit report and his or her performance on the job.

“Companies selling credit reports to employers aggressively market them as a way to tell if a job applicant will be a good employee,” writes Traub in an email. “But our research shows that poor credit more often tells a story of personal misfortune far more convincingly than one of poor work habits.”

The Demos study is just one that's recently looked into how many job candidates have been denied employment because of credit checks. A July 2012 survey by the Society for Human Resource Management (SHRM) showed that 80 percent of the organizations surveyed had hired a job candidate despite a negative credit background. However, the survey did not include numbers for how frequently candidates were actually turned down for a job because of negative information in their credit report.

The SHRM survey did report that the number of employers checking credit history declined between 2010 to 2012. There are several reasons behind that trend, according to Traub. A growing number of states have passed legislation restricting employment credit checks (California, Oregon, Washington, Vermont, Maryland, Illinois, Connecticut and Hawaii currently have laws on the books), so many employers may have decided to discontinue the practice entirely.

Also, media debate about whether credit history is really relevant to employment may have caused some employers to stop doing credit checks, as have concerns about lawsuits. In 2010, the Department of Labor won a verdict against Bank of America, which was found to have discriminated against potential African-American employees by requiring credit checks for entry-level positions.

Even though credit checks may be on a downward trend, Traub says that the true number of people denied employment is higher than many researchers are detecting.

“Employers often do not tell job applicants that they were rejected because of their credit — even though employers are required by law to make this disclosure,” Traub writes.

Tips for job hunters
What can you do to minimize the impact of a negative credit history while hunting for a job? If you past the interview stage and the employer requests your permission to pull your credit report, be up front about it, recommends Givens.

“Tell them that you have negative information on your credit report, and explain the reasons why,” she says. “In this economy, many people have been unemployed for a long time, and many people have lost their homes. It's important to give prospective employers a context within which to judge the negative information on your credit report.”

In addition, says Givens, focus on giving a strong interview and show how well-suited you are for the job. If an employer really wants you for the job, she says, chances are that they will look past your credit history.