Over the weekend, the New York Times published a chilling article about employer reliance on credit reports, The Long Shadow of Bad Credit in a Job Search. The main character was a poor guy who couldn’t find work as a shoe salesman after he couldn’t pay medical bills incurred for an injury he suffered after getting laid off (and losing his insurance).
The article points out that employers are actually a bit less likely to check credit reports on applicants than they have been in the past. While previous surveys (conducted by our friends at SHRM) have found that about 60% of employers check credit reports on applicants, that number is now down to about 50%. At the same time, however, many people have seen their good credit ratings go down the tubes in the last five years. So fewer employers are checking, but they may be dinging a higher percentage of candidates for poor credit.
Why do employers check credit reports, anyway? For certain positions, a credit report might reveal pertinent information. You may not want an employee who never pays bills on time to manage a department budget, prepare economic forecasts, or have free access to a company credit card. In many situations, however, poor credit reveals no more than bad luck: high medical bills, divorce, and job loss account for many financial woes. Although there are certainly some people who run up huge debts on luxury items, never planning to pay for them, there are many whose debts are based on sadder — and more mundane –circumstances.
Rejecting these applicants for jobs puts them in a Catch-22: They lost a job, which hurt their credit, which will prevent them from getting a job, and so on. In recognition of this, states are starting to step in and prohibit employers from using credit reports in making hiring and other job decisions. Nine states have passed these laws so far, and more are considering similar legislation. You can find our articles on these laws in State Laws on Employer Use of Credit Reports; for more information on the rules for using applicant credit reports in hiring, including notice and consent requirements, see Can Prospective Employers Check Your Credit Report?