States ban job-seeker credit checks

As US unemployment remains high, several states are making it easier to find work -- even for those who have bad credit.

By MSN Money Partner Feb 1, 2012 4:37PM

This post comes from AnnaMaria Andriotis at partner siteSmartMoney.


With the nation's unemployment remaining stubbornly high, a number of states are taking a step to help job seekers: banning credit checks.


This month, California became the seventh state to prohibit companies from doing credit checks on certain applicants, and similar bills are pending in another 19 states. On the federal level, a bill that calls for a similar ban is awaiting review by a House subcommittee. The moves could be "a game changer for people negatively affected by this economy," says Persis Yu, staff attorney at the National Consumer Law Center.


The trend also has ramifications for employers, who for years have been permitted to review the credit histories of prospective workers. The assumption, experts say, is that a bad credit report might help flag poor work habits and decision-making -- and even general untrustworthiness.


Indeed, some 60% of employers report doing credit checks for some or all job candidates, according to the Society for Human Resource Management. Of those, more than 60% said they are unlikely to accept applicants with an outstanding judgment currently filed against them, while nearly half would likely pass on those with accounts in debt collection.


Some research seems to back employers' fears: Nearly one-third of employees with self-reported credit problems engaged in "counterproductive work behavior," such as theft or accepting bribes, compared with about 18% of employees without financial problems, according to a 2008 academic study. Post continues below.

But consumer advocates say credit problems are more widespread now because of the struggling economy. Over the past two years, for instance, roughly 4.8 million homeowners have received a foreclosure notice, according to RealtyTrac. A foreclosure stays on a consumer's credit report for seven years.


Given that backdrop, some argue that employers should hire based on skills and qualifications and not credit histories. Those in the job market "have plenty of obstacles right now and should not have to try to defend the fact that they missed payments on bills," says Diane Rosenbaum, an Oregon state senator whose bill banning certain credit checks became law in 2010.


Case in point: Karen Selling, a dietetic technician in Shelton, Conn., says she and her husband, Christopher, a diesel mechanic, have each been on dozens of interviews over the past two years, but neither has been hired because of their credit histories. When their son got sick a few years ago, the Sellings racked up medical debt and fell behind on their mortgage. "Nobody is giving us a chance," she says.


In many states with the new laws, employers can still check the credit reports of applicants for certain white-collar jobs, such as positions in banking and law enforcement.


Under the Fair Credit Reporting Act, companies must get permission from applicants in writing to check their credit reports. For those with credit problems, it is better to explain what happened rather than deny permission, says John Ulzheimer, the president of consumer education at SmartCredit, a credit-monitoring site.


More on SmartMoney and MSN Money:


Feb 7, 2012 12:52AM

A thorough check on criminal background, employment references, and any other information submitted on the standard application are the only tools an employer needs to determine the risk level an applicant poses for ANY job.  There are too many situations beyond a person's control that can cause credit problems.  A spouses death, medical bills, and lay offs, not to mention the economy, are just a few examples of credit altering situations that are beyond one's control.  But even if the bad credit is due to some poor PERSONAL financial choices, an individual's personal finances are just that.  PERSONAL!  Should exceptions to this be made for consideration of emp for certain positions?  Absolutely not.  Bad personal credit does not equal bad policeman or bad banker.  Some of you are probably thinking, 'well obviously this commenter had bad credit'.  You know what?  You're right.  I also worked as a site manager for a loan company, where I increased sales by 34% during that same time.  My background is squeeky clean and would be welcome back with open arms from past employers.

Feb 7, 2012 1:18AM

Oh, and one last point.  THOROUGH Criminal and employment background checks ALONE would most likely expose risk of "unproductive work behavior such as theft and bribes".   Checking PERSONAL credit isn't going to tell you anything other than this person needs a job to pay debts they obviously can't pay without one. 

Feb 23, 2012 9:43PM
MirageGuy, you are a class one JERK. Refusing a candidate a job based on their credit report is bad enough, but to refuse someone a job because they've been on unemployment is completely without merit and ASININE.

The company you own or the company that put an imbecile like you in the position to do something as egregious as that doesn't deserve otherwise good people. If I were working for a moron like you and I found out what you were doing, I'd quit on the spot. It's jerks like you that give companies a bad name, and it's quite possible you've never been in a position where you couldn't put food on the table.

May you suddenly DROP DEAD.

Feb 6, 2012 11:46PM
The statistics for this year show that 79% of credit reports have errors, with 25% having serious and significant errors.  In addition, every 3 seconds, someone's identity is being stolen and tampered with. 

With this information, how can any employer even rely on credit reports to reflect a person's accurate "trustworthiness?"

Feb 2, 2012 12:31PM
I am of the belief that it is what you can do for the company in the future. While I understand some background info is necessary, I think companies are going to far. It is credit checks, too long out of work, job hopping, criminal check, drug testing. The question should be can the person do the job. If you want to check one or two of the items, then okay. But it seems you never get a chance to explain anythig in your past because you are automatically eliminated. 
Feb 7, 2012 2:21AM
Sure hope mirageguy has broad shoulders so that the rest of his body doesn't follow his head up his butt.
Feb 1, 2012 5:52PM
The only employers that should need to investigate credit history would/should be banks and other financial institutions/companies where the prospective employee would have direct access to money and clients' account/financial/personal information.
Feb 1, 2012 6:02PM
I would like some research on the credit checks the banks have done over the past 6 years. Maybe the employees took the money home? Ya think?
Feb 7, 2012 12:23AM
I feel if the president wants to put people back to work that he needs to eliminate credit checks  for some things. I have already sent my senator in Pa a message about this. Too many people owe student loans, or have had homes repossessed, or have defaulted on their credit cards or maybe have too many medical bills against them. How can they get a job if they have a low credit rating?  People need to write to their representatives and senators and let them know how they feel.  Now the gov't is letting the lending people put a tax on a home loan to make up for the 2% the people are saving on their ss on their pay checks. The little person can't win for  losing.  God help us little people!!
Feb 24, 2012 2:13PM
Good law - employers don't need this information - having bad credit is NOT  a reflection on the type of person you are nor does it have anything to do with your work ethic.  Also many people believe Cash is King and debt is dumb - pay cash or don't buy it - therefore, they wouldn't have a credit rating.
Feb 3, 2013 10:44AM
I can see having a credit check for a job with lots of financial responsibility, such as an accountant or funds manager, but not for a job that doesn't have anything to do with overseeing money.  Especially not an office clerk or retail sales type of position.
Apr 4, 2012 1:27PM
In my state part of the application process now requires you to state if you've received government benefits such as food stamps. A lot of people wind up stuck because they need the help to survive, but accepting the help prevents GOOD workers from getting a decent job. 

Feb 1, 2012 9:35PM
Not comparing the two, but it just reminded me that in Philadelphia they have "Ban the Box"... a bill that places restrictions on the questions a prospective employer can ask ex-offenders, essentially eliminating the checkbox that convicted criminals must mark on job applications.  How nice!  I guess it also eliminates the answer to "Did you ever kill anyone"?
Feb 1, 2012 5:44PM
Feb 1, 2012 5:31PM

Do what I recommend.  If they ever  collected unemployment insurance, PASS... Find a better candidate.

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