Updated: 9/24/2010 9:00 AM ET|
Could you be fired for bad credit?
In some cases, the answer might be yes. Or you might simply not be offered a job and never know why. If you find that troubling, here's what you can do.
Credit background checks have become routine among employers, even as soaring unemployment and foreclosures have resulted in black marks on millions of people's credit histories.
Credit checks are required for federal jobs with security clearances, but six out of 10 private employers check the credit histories of at least some of their job applicants, according to a recent survey by the Society for Human Resource Management.
Companies do so primarily to prevent or reduce crime, such as theft and embezzlement, the survey indicated. The idea is that people who have debt problems are more likely to steal or commit other crimes.
Overused and abused
I've been reluctant to weigh in against employers using credit checks, assuming companies would use some common sense. The human-resources survey disabused me of that notion. Consider:
- Thirteen percent of employers use credit checks for all their employees, including those who don't handle money, have any fiduciary or financial responsibilities, or even access to sensitive information. There's no evidence credit checks are effective in preventing crime even in financially sensitive positions, so how can we justify them for anyone else?
- Twenty-five percent acknowledged that a bankruptcy on an applicant's credit report would most likely result in a decision not to make a job offer. Here's the problem: Using a bankruptcy as a decision not to hire (or to fire or to refuse a promotion) is illegal under federal law.
- A majority (65%) allow applicants to explain credit-check results before the final hiring decision is made. But 22% allow applicants to explain only after a decision is made, and 13% don't allow any explanation. Even if employers are convinced that credit checks prevent crime, why wouldn't they want to know if an applicant was the victim of identity theft or ran up debt for a life-saving operation for their child?
If companies aren't willing to use a little common sense on their own, maybe some needs to be imposed on them.
No evidence supports use
There's no hard evidence that links bad credit and bad morals.
"At this point we don't have any research to show any statistical correlation between what's in somebody's credit report and their job performance or their likelihood to commit fraud," Eric Rosenberg, the state government liaison for TransUnion credit bureau, conceded in testimony to Oregon legislators.
Rosenberg was actually arguing against a state bill that would limit employers' ability to use credit checks. TransUnion and other credit bureaus that provide the reports say they're an important tool for evaluating applicants.
The arguments didn't sway the Oregon Legislature, which recently passed a law prohibiting credit checks for hiring, firing, promoting or determining compensation for most workers. Exceptions were made for financial institutions, public-safety offices and other employment if credit history is important to a job and a background check is disclosed to the applicant or employee.
Washington state and Hawaii already have curbed widespread use of credit checks in making hiring decisions. Other states are considering similar laws, and U.S. Rep. Steve Cohen, D-Tenn., has sponsored a bill that would ban employment-related credit checks nationwide except when the job:
- Required a national-security or Federal Deposit Insurance Corp. clearance.
- Was with a state or local government agency that otherwise required the use of a consumer report.
- Was in a supervisory, managerial, professional or executive position at a financial institution.
It appears that Congress won't act on Cohen's measure, though.
Some second thoughts
At least the federal Defense Finance and Accounting Service in Cleveland, which considered terminating dozens employees at least in part over bad credit, is now taking a second look at its decision. After the workers' situation was publicized and U.S. Rep Dennis Kucinich, D-Ohio, intervened, the agency agreed to review its actions and delay firing 39 people who had been expected to lose their jobs.
Defense Finance and Accounting Service spokesman Tom LaRock said the agency was just following guidelines set down by the Department of Defense in 2005. The workers' jobs were reclassified from "noncritical, nonsensitive" to "noncriticial, sensitive" because of workers' access to private, identifying information, such as Social Security and bank account numbers.
"Because of what we do -- paying people, paying all DOD bills -- because of that fiduciary responsibility, all DFAS positions were reclassified," LaRock said.
The guidelines require that workers be investigated not only for their credit but for other criteria including, according to a Defense Department fact sheet that LaRock supplied, "allegiance to the United States, foreign influence, foreign preference, sexual behavior, personal conduct, financial considerations, alcohol consumption, drug involvement, psychological conditions, criminal conduct, handling protected information, outside activities, and use of Information Technology (IT) systems."
Financial considerations alone rarely lead to firings, LaRock said. Typically, there is some other problem, such as "personal conduct" or false statements to investigators, he said.
If you agree that use of credit checks for employment purposes has gone too fa,r let your lawmakers know. You can find your congressional representative here and your senators here. And if you're job hunting, consider reviewing this fact sheet from the Privacy Rights Clearinghouse about what to expect.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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My finace and I went through this a year ago. He was out of full-time (gainful) emplyoment for 4 years, and had been trying to find work the whole time. Any work he would get was always temporary because of lay offs due to the economy and/or the companies ended up bankrupt and closed. He was college educated and had perfect credit for years! Then he learned he had cancer, and before long, all of the money we had in savings and my job, resulted in medical debt. No job, No insurance +more bills and debt.
I had to leave full time employment to care for him and drive him to medical appointments. I was the only one working and struggled to keep up our payments on the house and car (my own car was paid for but he had a truck that was necessary for work and where we lived there absolutely no public trasnsportation).
We did all the "right things" for years as far as being responsible with debt/purchases. We had degrees, experience and various skills. We never steal and we would never have even considered stealing.Yet we were both turned down for employment with $10 an hour paying jobs due to bad credit! He since passed away and of course I am left with nothing after medical companies, and debts ate up the insurance policy. My credit is trashed from that and I have a hard time getting a job due to it. I know credit is the reason because I sign up to receive the notice of why I get declined from the credit report section of every job application, and I call the company to inquire why as well.
If a person steals, it's becasue they are a thief, not because they are poor. Same with a liar, you lie becasue you are a liar not because you are poor, or down trodden. If we are going by this rule for jobs, then most every CEO and politician should be fired because we the people are lied to and stolen from daily. You steal our tax dollars and lie about how they are really being used. And I dont have a problem with people being rich or living well, but CEO's practically steal labor...at least pay people a living wage!
did anyone ever check the credit of bernie madoff or the guys from enron? i bet you they all had stellar credit ratings as they stoles millions upon millions from people?
credit rating does not guarantee honest employees or employers
This article point to a clear problem, or should a say something that should be illegal. A credit score isn't a indicator as to whether someone will break the law. Employers need to stop relying on something that has nothing to do with the job....I'd support making the use of a credit report illegal for employment.
I work in a store, I handle large amounts of cash and guess what, I have a bad credit score (my credit stinks) but let me try to get a better paying job with a company that does credit checks, they won't hire me because of my credit score. I even tried to get a job that did a security background check and it came back as Classified, they wanted to know why and of course I refused to tell them (Classified means Classified, no one is allowed to access the information) and because of that I was refused jobs because of that. Bottom line employers control who gets a job and if they can't get anyone they close the doors.
Some of us are honest employees and would never consider stealing, you can ask my employer (I can't stand thieves) and he trusts me with handling over thousands of dollars on a daily basis. So where is the basis that a person who has a low or bad credit score is likely to steal, or give away information for money. Come on people lets get real.
Credit checks for employment are useless. They should be banned on a federal level. It really is none of their business.
PERFECT SOLUTION FOR DEBT CRISIS!!!!!!!! In Texas a single mother of 3 that works for 9.00 per hour can get $850.00 per month in housing, $450.00 per month in food stamps, and an estimated $1200.00 per month for medicaid on her 3 kids. Then she can take her net income of about $16,000 and file income tax and get back $8,000.00 for earned income credit when she only paid in about $650.00 all year. If you add all her benefits, her pay, and her income tax refund, she's making over $54,000.00 per year and pregnant again. Anyone who receives food stamps, medicaid, or free government housing shoud have to forfeit their income tax refund. It should go back into the system thats taking care of them. Say you take a Section 8 HUD apartment complex with 100 tenants and they are all doing the same thing. If the government would recoup their checks, they would be putting back $800,000 per complex back into the USA. Do you know how many Section 8 HUD complexes there are? The USA could be debt free in one year. Of course the people receiving the free ride won't like it because then they will be held accountable for themselves and the children they keep having to stay on the train giving the free ride.
Allowing a credit check to be ran for a non-credit application should be illegal...
What makes these people have the right to pry?
The likely to commit theft is like a movie I saw about cops enforcing "future" crimes....You know ones that haven't happened....
When I was in my late 20's, I had a hot check. about $30. When it went to the bank, the bank was small enough that they had a board that decided whether to pay them or send them back or close your account. Well, my boss was notified from a member on that board. I was notified that she talked them into paying it but told me that if she ever saw one again that I would be immediately fired. mmm. I would think that was a privacy issue. This was 15 years ago. Not all that long. It still pissess me off.
Oh, and my boss had filed bankruptsy in the past from a past business.Who was she to judge a $30 hot check.
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