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It’s Discrimination for Employers to Check Job Applicants’ Credit History

It’s Discrimination for Employers to Check Job Applicants’ Credit History

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.

Related Stories:

Keeping Score: Our Credit Score, Our Right

EEOC Tackles Pre-Employment Criminal History Screens

Huge Racial Disparities in Health in the U.S., Says CDC Report

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9:43PM PST on Dec 29, 2014

Your blogs and every other content are thus interesting and helpful it makes me return back again. Techs on the move Australia

5:51AM PDT on Jun 16, 2013

I see this more times than not! It is so frustrating. I just recently got turned down for yet, another job because of my credit. Some of the most reputable people, that we put so much trust in have worse credit than your average Jane Doe. I did mortgage loans for 10 years and was damn good at it. I was top producer every single month, I kicked ass. My credit wasn't good, but I was trustworthy and good. I was promoted twice in 2 years at the first mortgage place I was at... my credit had nothing to do with my job performance. This is why I have a big problem with credit inquiries. I went on to another mortgage company for 8 years, only worked 4 hours a day and made $36,000 a year working part time.. because I was that good and it allowed me time with my kids. People can generalize and make up any excuse they want to not hire me, when it all came down to my credit.. and my credit doesn't define me.. I define me. To me, it's a crock of shit.. and it's no wonder they can't keep employees at these places. cuz they hire them based on their score, not based on them as a person

4:35AM PST on Dec 31, 2012

I'm not sure it's discrimination, but it should not be done. Your credit score has nothing to do with your job performance.

8:44AM PST on Dec 26, 2012

GIVE ME A BREAK - I am tired of EVERYTHING being racial when it is NOT.
I am white, I have been unemployed for 3 yrs and have DEFINATELY lost jobs due to credit checks and some recruiters would not even submit me for some jobs because of my low credit score. And the way I am reading this is that if you are NOT white you HAVE recourse but if you are white you have NO recourse – it would seem to me that the racial bias is against whites.

6:22AM PST on Dec 24, 2012

I had a nearly perfect credit score my entire life, but when I made an investment in some real estate during the peak of the market, I had to let a home go into foreclosure which ruined my credit badly. I remember being asked to provide my credit history for jobs after that, and I am sure it affected my chances of getting employed.
I am on the fence with this issue because I do think that having good credit shows responsibility, but at the same time it can hurt people that just made a mistake but are otherwise financially responsible.

7:23AM PST on Dec 22, 2012

If I lived in the US, I'd start a petition to make this illegal. Somebody?

If this isn't an invasion of privacy, I don't know what is!!!

5:22AM PST on Dec 22, 2012

I was denied 2 jobs for having a bad credit score, I explained just because I was having financial problems that did not make me a thief, I would be more worried in this economy of a person with a good credit score, hummm how are they paying all their bills?? One of the jobs was at Goodwill where they are suppose to help people??? Right!

2:26AM PST on Dec 22, 2012

This is a clear violation of a persons privacy and should be outlawed.

7:32PM PST on Dec 21, 2012

Work history? Not descrimination. Credit history? None a your darn business.

2:30PM PST on Dec 21, 2012

With embezzling stories hitting the press all the time,Piper seems rather naive in his statement: "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." It is unbelievably tempting to be around money when one is experiencing large debt. Employers, especially banks, have to recognize that fact and adjust accordingly, especially in this age of huge credit card debt and unpaid student loans.

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