A credit history check is almost a routine part of a job application lately.
- Do employers really look at these? Yep.
- Do they withdraw job offers based on what they find in credit histories? You betcha.
- Why are employers placing so much emphasis on credit history? Search me. As far as I can tell the whole process is a complete crock.
The worst part is that it hits minorities harder than whites.
Perversely, the process begins with the employer asking the job applicant for her “permission” to check her credit. Without that permission, they can’t look at her records. On the other hand, without that permission they won’t consider her job application. Somehow her “permission” doesn’t seem entirely consensual in this situation.
Usually the employer will have made a hiring decision by the time it finally gets the documentation from the credit reporting agencies, three of which have a monopoly that excuses them from doing anything quickly or accurately (more on that later). The employer may have even made an offer to the job applicant before looking at her credit. The applicant may have given notice at her job, even sold her house in preparation for the new job. Then the employer discovers that her credit isn’t great and pulls the rug right out from under her. She is now without her old job, has sold her house, and doesn’t have any income.
As an employment lawyer, I represented a few people in situations like this. Their finances and careers were devastated. And for what?
Lots of things can lower your credit score, including late payments, closing a line of credit, and even errors on your credit report that aren’t your fault. I had a client whose credit score dropped when his mother-in-law ran into financial trouble and he took over her mortgage payments so she wouldn’t lose her home. Another had a medical crisis and ran up large hospital bills.
It is a statistical fact that racial minorities tend to have lower credit scores than whites. That means that when employers base hiring decisions on credit histories, they are going to reject more minorities than whites on that basis. This is what lawyers call a disparate impact: an employment policy that hits one race harder than another. It is illegal race discrimination, even if the employer didn’t intend to discriminate.
What is it that employers do intend to accomplish? It beats me. There are no studies proving that credit histories can predict anything about a person’s future job performance. The only thing a credit history can show is whether a person has had money troubles. Using that information to decide whether to hire someone seems to me like an assumption that people with less money are more likely to steal from their employers. Otherwise, why not hire them?
This is, of course, a silly assumption. Look at Enron. Bernie Madoff. Wall Street. Grossly inflated executive pay across the economy. We are up to our eyeballs in examples of rich people stealing. There is absolutely no reason to think that the less advantaged are less honest.
To be clear, employers generally don’t base employment decisions on credit scores, but on credit histories. They pick out the elements of the histories that they believe are relevant for whatever irrational reason. Credit histories go back a long way, so if you made late payments five years ago, a prospective employer could hold it against you.
There isn’t much an individual job applicant can do about this practice — unless you get turned down for a job because of your credit and you are a minority. In that case, you can go to the Equal Employment Opportunity Commission or to a state or local human rights agency and file a complaint against the employer for racial discrimination.