Bad Credit, Bad Hire?

A bad credit report can keep you from getting a mortgage; should it also prevent you from getting a job?

That’s the question being explored today by the Equal Employment Opportunity Commission, the federal agency that enforces laws that prohibit discrimination against workers based on race, religion, gender, age, or disability.

Legislation pending in Congress would limit the use of credit reports in hiring decisions to special cases, such as jobs requiring national security clearances. Supporters contend the bill is needed because employers are increasing their use of credit reports during the applicant-screening process.

That’s just not fair, contends the National Consumer Law Center. Credit reports can be full of inaccuracies, and they’re not good predictors of job performance, the center argues. Plus, using credit reports discriminates against blacks and Hispanics since these groups have higher foreclosure rates due to predatory-lending practices and tend to run up higher medical bills than whites, according to the center.

The use of credit reports also creates a catch-22 situation for unemployed job applicants, according to Chi Chi Wu, an attorney with the center.

“Simply put, a worker who loses her job is likely to fall behind on paying her bills due to lack of income,” Wu said at a House hearing on the issue earlier this year. “With the increasing use of credit reports, this worker now finds herself shut out of the job market because she’s behind on her bills.”

Groups representing employers, however, contend that credit checks are useful in evaluating applicants for certain jobs.

“They provide a variety of information that cannot otherwise be confirmed by an employer,” said Pamela Devata, a partner with Seyfarth Shaw LLP who represents businesses on employment issues. “They are viewed as a valid indicator of a person’s judgment and potential risk to the company.”

“The consequences of making a poor hiring choice can be great, possibly leading to financial losses or an unsafe work environment,” said Christine Walters, a human resources consultant in Westminster, Maryland, who represented the Society for Human Resource Management (SHRM) at the EEOC hearing.

Both Devata and Walters said employers rarely decide not to hire someone based solely on what is in their credit report.

“We do not presume that just because an individual has slow or bad credit that she or he is automatically not qualified for any job,” Waters said.

Employers almost always give applicants a chance to explain the information on their credit reports, Devata said.

Plus, credit reports used in employee screening do not include credit scores, she said. Employers have to read the full report—not just a numeric score—in order to evaluate a job applicant’s credit history.

Devata and Walters also contend that existing laws, including the Fair Credit Reporting Act, prevent employers from misusing credit reports.

Plus, SHRM contends that employers have not increased their use of credit checks over the past six years. They typically use them only for positions where they are relevant, such as jobs with financial responsibility or those with access to confidential information, SHRM’s surveys show. Credit checks also tend to be used at the end of the hiring process, not as a way to screen candidates at the beginning, according to SHRM.

Those assurances aren’t enough for consumer advocates.

“Workers across the board have suffered wage cuts, layoffs, and foreclosures during this economic crisis, all of which have impacted their credit history,” Wu said. “As we work to rebuild our economy, we believe that hard work and dedication, not discriminatory and unreliable hiring tools such as credit reports, should be the economic passport for workers in the United States.”

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Kent Hoover is the Washington bureau chief for bizjournals.