Job searches complicated by checking your credit
Failing to pay your bills could keep you from getting a job.
Frustrated at the reticence of applicants' previous employers, companies seeking an indicator of their job candidates' character are turning to credit reports. Some also do regular checks on current employees.
The use of credit checks comes at a tough time for workers whose credit histories have been trashed after they lost a job in a tough economy. Getting their credit back on track might require getting a job, but that could be more difficult with a lousy credit history.
Justin Millay, 28, a central Ohio native who moved to Kentucky with his wife after he lost his job in Columbus, can speak to the problem. He said he thought he had a new job lined up as an assistant manager of a sporting-goods store - until the company did a credit check.
Millay said he knew he had bad credit. "I never thought I'd lose a job over it," he said.
It's not clear how often employers and would-be employers conduct credit checks.
A survey by the Society of Human Resource Management in 2010 found that 13percent of companies conduct credit checks on all prospective employees, while 47 percent do it some of the time. That's about the same as in 2004.
Others say the use of credit checks is increasing and spreading to jobs that do not include handling cash or confidential information.
Regardless, the issue is capturing more attention.
The U.S. Equal Opportunity Employment Commission held a hearing on the topic in the fall, and in Illinois, as of Jan. 1., it is illegal for most employers to review credit reports when hiring.
A telephone poll conducted in January for Credit.com found that 53.5percent of those responding favored banning the use of credit checks for employment, while 38.3percent approved of their use.
In the EEOC's fall hearing, Chairman Jacqueline Berrien said: "The use of credit checks has grown, and at the same time, questions have emerged about the fairness of the practice - whether the results of the credit check correlate to job performance, and whether there are any adverse impacts."
The human-resource group says the use of credit checks in hiring is limited. Most companies rely on checks primarily for positions that involve handling cash or confidential employee information, or that are senior executive posts.
The group says that credit checks generally aren't done until after a job interview or offer, meaning that most applicants won't face a review of their credit report. The credit check is part of an overall background check that can include a drug screen and a review of employment history.
Columbus human-resources consultant Steve Snelson said that, based on his experience, less than 1percent of candidates are denied a job offer because of their credit history.
Employers look in credit reports for problems such as court judgments, debt collections and lawsuits, said Elizabeth Owens Bille, the human-resource group's associate counsel. Applicants typically are given a chance to explain problems, she said.
Employers also are looking for details of an applicant's work background. That has become more important because an applicant's past employers, fearing legal action, rarely release more than job titles and dates of employment.
What's not a part of the credit check is a credit score, the number that credit-reporting agencies assign to consumers that helps determine how creditworthy they are.
"There's a misconception that ... any blemish will cost them a job," Bille said. "Research has shown that's not the case."
Bille said credit checks can be a valuable tool in hiring. A company wanting to hire a senior financial executive, for example, would want to know if a candidate has trouble paying personal bills on time, she said.
Snelson noted that companies can spend six to 18 months of an employee's salary to recruit, hire and train a new employee. "Therefore, it is imperative to choose the right candidates that have the most potential for being successful and will stay with the company," he said.
Chi Chi Wu, staff attorney for the National Consumer Law Center, worries that checking credit histories will spread into job categories that don't necessarily involve handling money, such as nursing-home jobs, she said.
Snelson said the logic behind looking at credit reports in hiring can be similar to the reason insurance companies check credit reports of customers before issuing policies. "They want to know if you're a responsible person," he said.
One problem is that a lousy credit report can be a result of other factors: a divorce, a death in the family, medical problems or a lost job that caused a bankruptcy. Also, a potential result is discrimination - even if unintended - because minorities tend to have more credit problems.
"It may have nothing to do with that person's character," Snelson said.
In December, the EEOC sued Kaplan Higher Education Corp., alleging that the company discriminated when it refused to hire a group of black candidates nationwide.
The lawsuit, filed in Cleveland, said that since at least 2008, the company has rejected applicants because of their credit history, a practice that the government has contended can discriminate against minorities and is not necessary for the job.
"Employers need to be mindful that any hiring practice be job-related and not screen out groups of people, even if it does so unintentionally," said Debra Lawrence, an agency attorney.
Kaplan said it conducts background checks on all prospective employees and that the checks include credit histories of those who will have financial duties, such as advising students on financial aid.
"We are an equal-opportunity employer, and we are proud of the diversity of our work force," the company said.
Robb Christenson, Columbus manager for staffing firm Robert Half International, said he alerts applicants when companies require credit checks. Some applicants back out.
"It's a concern," he said of credit checks. "People are unemployed, their credit is sinking, and they're trying to get back to work."
Credit checks are not limited to those seeking a job or a promotion.
One worker in Columbus, who asked that her name not be used, said her employer requires annual credit checks. If anything negative comes up, such as an account turned over to collections, workers are given a chance to explain and are put on probation, she said.
She said one worker going through a difficult time quit, knowing the credit problems could not be cleaned up in the time the company allowed.
She said her company, which works with data that go to credit bureaus, does not rule out applicants with bad credit as long as overdue accounts and accounts sent to collections are paid.
"So, if you lose your job due to the lousy economy, and then you fall behind on your debts, you will not be able to gain employment at my company as long as those debts are still unpaid," she said.
"I think it is extremely unfair when your actual credit history is actually holding you back from a job that you are otherwise qualified for because, let's face it, no one is perfect, and everyone makes mistakes."