The recession has stripped millions of workers of jobs, putting many behind on bills and damaging their credit records.
Unfortunately, it’s a bad time to have poor credit, especially if you’re job-hunting. That’s because employers are increasingly checking people’s credit reports before hiring them.
“There’s definitely a trend of more and more companies using this as a tool because it actually gets them information,” said Mark Shank, a labor and employment attorney at Gruber Hurst Johansen & Hail LLP in Dallas.
The recession has made this a buyer’s market when it comes to hiring, which may be leading more companies to use credit reports as screening criteria, said John Ulzheimer, president of consumer education at Credit.com.
“I get the sense that employers are becoming a little bit more picky about whom they’re hiring because they’re recognizing that it’s an employer’s market right now, so they can hold out for a more perfect fit,” he said. “One of the ways you can be a more perfect fit is to have a clean credit history.”
Retailers and financial service companies in particular pay close attention to a person’s credit history because their jobs often involve employees handling large amounts of money, said Shank, who serves on the board of directors of a bank.
“If I’m a bank, we’re required to do a credit check because if someone is in financial distress, we don’t want them to have access to thousands and thousands of dollars of cash every day,” he said.
Some consumer advocates oppose the use of credit reports in hiring decisions because of the high incidence of errors in the information.
Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group, said a 2004 report by his group found that “one-quarter to one-third of credit bureau reports contain errors serious enough to deny credit or employment.”
His organization supports legislation by U.S. Rep. Steve Cohen, D-Tenn., that would ban the use of credit reports for employment purposes, except in limited circumstances.
“Let’s not deny jobs on factors that have nothing to do with potential work performance, especially when those factors could be mistaken,” he said.
Shank said there’s no federal law that “specifically prohibits employment discrimination on the basis of a bad credit report.”
But credit reports can be used to discriminate in ways that are prohibited by the Equal Employment Opportunity Commission, said Audrey Mross, a partner and labor and employment lawyer at Munck Carter in Dallas.
For example, she said, the use of credit reports “can have a disparate impact on women and minorities.”
David Grinberg, an EEOC spokesman, agreed, saying: “There is evidence that employer credit checks may disproportionately screen out minority job applicants and may therefore be unlawful unless needed for the employer to operate safely or efficiently.”
While employer credit checks aren’t unlawful per se, he said, “it seems likely that an employer will be able to justify their use only in very limited circumstances.”
Mross noted that negative credit information may not account for circumstances beyond a person’s control.
“What about the person — because of a terminally ill child — they’ve literally not paid their car note because they were paying the hospital?” she said.
Some employers may give a job applicant an opportunity to explain negative information on a credit report, she said.
“Employers recognize that with the economy that we’re in now, that there are some very upstanding people who got themselves in trouble and that it’s not a reflection of their trustworthiness or their honesty,” Mross said.
Federal law does provide you with certain rights when it comes to having companies pull your credit report during the hiring process.
— Before a prospective employer can obtain your credit report, it must notify you in writing that your credit report may be used as part of the hiring process, and it must get your written authorization to pull your information.
You can refuse to let a prospective employer pull your credit report, but that may put you out of the running for the job.
“They can say, ‘Fine, you’re no longer a candidate because that’s one of the criteria,’ ” Shank said.
— Before an employer can deny you a job because of what’s on your credit report, it must give you what’s called a “pre-adverse action disclosure” that includes a copy of your credit report and a copy of your rights under the law.
— You also must be told that you have the right to dispute the accuracy or completeness of any information on your credit report and the right to an additional free credit report from the credit bureau agency upon request within 60 days.
One way to avoid getting caught off guard by what’s in your credit report is to monitor it throughout the year. You should be doing that anyway to protect yourself against identity theft and to give yourself an opportunity to correct any inaccuracies.
You’re entitled to one free credit report every 12 months from each of three national credit bureaus — Experian, TransUnion and Equifax. Go to annualcreditreport.com and pull all three reports.
Job applicants also are advised to be upfront with a prospective boss about their credit reports.
“The vast majority of people, if you’re upfront with them and tell them, ‘There’s going to be something that will give you pause, let me give you information on why it’s that way and this is how I’m going to address it’ – I’ve seen people admire that show of guts,” Mross said.
You can head off those awkward moments if you’re on top of what’s in your credit report and correct it beforehand.
“Don’t be blissfully ignorant of your credit report,” Mross said. “Know where you stand.”
When company checks your credit history, it doesn’t get your score
While prospective employers can pull your credit report with your permission, they can’t get your credit score.
“Credit scores are not provided along with the credit reports that the bureaus sell for employment screening,” said John Ulzheimer, president of consumer education at Credit .com, a credit information Web site.
Here are the positions taken by the three national credit bureaus, Experian, TransUnion and Equifax:
— “The key point to consider here is that credit scores are not predictive of employment performance,” said Steven R. Katz, director of consumer brand at TransUnion. “They are designed to predict the likelihood of such things as an individual defaulting on a loan or filing for bankruptcy.”
— “We don’t provide credit scores with an employment report because they’re not extending you a loan,” said Michele Boddavice, president of product management and development at Experian Credit Services. “There’s no relevancy there to your credit score and an employment decision.”
— Equifax doesn’t “provide credit scores or files (credit reports) for pre-employment screenings,” said spokesman Tim Klein.
(c) 2009, The Dallas Morning News. Source: McClatchy-Tribune Information Services.