During this economic downturn, a lot of people are caught in a seemingly unbreakable cycle of insolvency. They're in financial trouble at least in part because of a job loss. When they try to get a new job, their financial woes keep them from getting hired.
According to the Society of Human Resource Management, 60% of employers nationwide perform credit checks on potential hires. A poor credit report may be the factor that keeps a promising applicant from being hired.
"There can be legitimate reasons to pull a credit report," says Larry Lambert, President of Employment Screening Services, Inc. "You wouldn't want to hire someone on the edge of bankruptcy to take care of your assets."
For most jobs, however, a credit report doesn't have such a direct connection to performance of job duties. Instead, employers use it much like a character reference -- extrapolating an applicant's probability of job success from a financial report.
Nevertheless, employers continue to pull credit reports on applicants -- many without really considering why.
"Sometimes it's because the employer believes in a made-up correlation between credit problems and general irresponsibility on the part of the job applicant," explains Liz Ryan, a workplace expert and former Fortune 500 HR executive.
Are Pre-Employment Credit Checks That Much of a Problem?
Credit reports were never designed to predict job success, say experts, and that's one problem. "The [report] is designed to determine the likelihood of someone defaulting on a loan, not whether someone would make a good employee," points out Brad Clarkson of the National Association of Professional Background Screeners.
Bad credit is the result of a lot of factors, many of which may not be under the job seeker's control. A negative credit entry could be in error or caused by misbehavior on the part of a former spouse. Of course, many of those black marks could be there because the applicant has been unemployed and hasn't been able to pay the bills.
When you try to predict future behavior on a few data in a relatively unrelated area, says Liz Ryan, you're on a slippery slope.
"What's next?" she asks. "Asking a job-seeker whether he or she is married, or has ever been depressed, or has ever had negative thoughts about a boss or employer?"
The good news for people stuck in the unemployment and insolvency cycle is that the federal government and a number of states are coming to the same conclusion. Three states -- Washington, Oregon and Hawaii -- have already passed laws regulating pre-employment credit checks. Sixteen other states and the federal government are considering doing the same.
These laws prohibit typically employers from pulling credit reports without a specific, clear, legitimate business reason. For example, an employer wouldn't be allowed to pull credit reports on applicants for a job as a janitor. They would, however, be allowed to do so if they were hiring a company accountant.
"Even hardworking people have been losing jobs since the economic downturn," says Healy Jones, head of marketing for Office Drop. "It doesn't make sense to discriminate against someone who worked hard their whole life and then lost a job and had problems meeting obligations."
Related Resource:
"Employer Credit Checks May Soon Be Illegal" (MainStreet.com, July 23, 2010)
