According to a recent study by Demos, three important factors are linked with a poor credit report: unemployment, lack of health coverage and medical debt. Needless to say, the recent recession created an environment where a good credit report was a likely casualty, as many families struggled with job loss. Ironically, one of the barriers unemployed job applicants may face as they search for a good job, with a living wage, is the credit report that took such a hit during their period of unemployment.
As the Demos report explains, federal law requires employers to have written permission before requesting an applicant’s credit report. The catch is, employers can refuse to hire employees who refuse to give permission. And although federal law also requires employers to disclose when credit information is the basis for denying someone a job, the denial of employment for this reason is legal in most cases.
During the Great Recession, many uninsured, unemployed Americans saw debt accumulate due to health issues or other emergencies beyond their control. This record of unpaid debt now sits on their credit reports and is part of what potential employers may see as they make hiring decisions. For some quick perspective on the number of people potentially impacted by this issue, consider that:
- Around 8.7 million jobs were lost during the downturn, according to the Center on Budget and Policy Priorities.
- An estimated 9 million people lost their health insurance due to job loss in 2008 and 2009 alone, according to the Commonwealth Fund.
- Only 25% of these 9 million uninsured and unemployed workers were able to find another source of health insurance, and
- Only 14% continued their coverage through COBRA, a program allowing qualified former employees to continue group health coverage for a limited time and typically at a higher rate than the individual paid while employed.
Out of the millions of people who suffered job loss and loss of insurance, how many will see their credit score cost them a new job? The Demos report, Discredited: How Employment Credit Checks Keep Qualified Workers out of a Job, details findings from a 2012 survey of 997 low- to middle-income households. First of all, they found that 1 in 4 unemployed respondents had been asked to release their credit report as part of the application process. They also found that 1 in 10 unemployed workers had been told they would not be hired based on information found on their credit report. Furthermore, 1 in 7 respondents with poor credit reported they were denied a job due to information on their credit history.
Of course screening an applicant’s credit is reasonable with regards to sensitive positions relating to finance, personal records or even government security. Yet, Demos also found examples of employers using credit checks to screen potential delivery drivers, maintenance workers, and yogurt servers. So while defenders may rightly point out that the requirement to provide a credit report is largely confined to upper level positions, the practice is expanding. And when the practice spreads to the point where companies are pulling credit before hiring someone to dispense yogurt, perhaps it is time to reexamine how this can impact individual privacy.
- A credit report may contain information on a person’s medical debt, among other personal details. Not only could this information unreasonably leave applicants at a disadvantage due to debt incurred from a past family health emergency, there is the potential for employers to make assumptions about an employee’s health and reliability.
- High levels of student loan debt, large amounts of credit card debt, a past bankruptcy and other indicators of a person’s financial situation are also laid out. This can give rise to concerns of disparate, or unequal, impact as the Equal Employment Opportunity Commission has noted.
- Also highlighted in the report is the harm a mistake by a credit reporting agency can have on an individual who otherwise have a good credit history. The ability to quickly fix errors on credit report, a report which was not originally created to determine eligibility for employment, is now more important than ever.
The risk of relegating hardworking Americans to low-wage jobs or periods of long unemployment based on past medical expenses, income disparities, and mistakes are some of the reasons why lawmakers are beginning to take an interest in the use of pre-employment credit checks. So far, 9 states, along with a number of local governments, have enacted laws restricting the use of credit checks as a part of employee screening. To date, Oklahoma is not one of them.
- Issues brought up in this report are discussed in a recent New York Times article.
- Forbes also had a recent article on the topic
- More information on what job applicants should know about pre-employment credit checks, and background checks in general, is provided by the Federal Trade Commission.