If you keep missing out on job offers, your credit score could be the problem.
Many employers conduct background checks as a standard part of the hiring process. A recent CareerBuilder survey found that 72 percent of employers run background checks on job applicants.
During a background check, employers look for a criminal record, confirm employment and education information, and check for drug use. And 29 percent of employers who perform background checks also look at credit history.
Can employers reject job candidates because of a credit check? And do you have any rights if you lose out on a job because of bad credit? The answers depend on where you live.
Why do employers conduct credit checks?
Employers use credit checks as another tool to screen job applicants. Hiring managers look for significant debt, a history of nonpayments, or other potentially problematic financial information on an applicant's credit history. When hiring candidates for jobs that involve finances, a credit check provides additional information to employers.
An employment credit check does not list the job applicant's credit score. Instead, it provides information about their borrowing and repayment history, including any bankruptcies, bills in collection, credit card balances, and tax liens.
Supporters of employment credit checks claim the process prevents companies from hiring untrustworthy or irresponsible employees. They claim that high debt levels could increase the chance of financial fraud or theft against the company.
However, critics see a major problem with using credit checks in the hiring process. A Demos study of employment credit checks found that people who were unemployed in the past three years, those with children, and people of color have disproportionately lower credit. By screening out these job applicants, companies may run afoul of discrimination laws.
The legal side of employment credit checks
In 2020, the House of Representatives passed a bill that would ban credit checks during the hiring process. Sponsored by Rep. Maxine Waters (D-CA), the bill also banned hiring managers from questioning job applicants on their financial past or asking for credit history information.
"An individual's credit history has been shown not to predict their job performance," said Waters. "People who have been unemployed for an extended period of time, and whose credit standing has been damaged because they were unable to pay their bills, cannot secure a new job to end their financial distress because prospective employers conduct credit checks as part of an application process."
But the national ban on employment credit checks failed to pass the Senate. As a result, whether employers can refuse to hire a job candidate because of their credit varies by state.
Currently, 11 states limit employment credit checks. Those include California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington.
In addition, some cities have also limited the use of employment credit checks, including New York City and Chicago.
For example, New York City states that employers cannot run credit checks, ask about credit history, or inquire about debt or student loans during the hiring process. The law also says employers cannot refuse to hire, fire, or refuse to promote someone because of their credit.
However, there are exceptions to the credit check rules in these states and cities.
When employers can use credit checks
In most states, employers can legally conduct a credit check during the hiring process and use that information in making hiring decisions.
And even in states and cities that restrict employment credit checks, there are exceptions. For example, financial institutions can use credit reports to evaluate job candidates. Similarly, positions where credit history could relate to professional duties can conduct credit checks.
Employers must notify candidates before rejecting them based on a credit check. The employer must give job applicants a copy of the credit check used in the hiring process and time to respond. Applicants can correct mistakes in the credit report or explain misleading information. The law also gives applicants the right to a free copy of their credit report.
Steps job candidates can take
In every state, job candidates should protect themselves from being rejected because of their credit.
First, know the laws in your state or local area when applying for jobs. Potential employers cannot conduct a credit check without your permission. Under the Fair Credit Reporting Act, employers must receive written permission from job candidates before conducting a credit check.
Second, check your credit report regularly so you can see what employers see. Look at more than just your credit score; your complete credit report may reveal erroneous accounts or loans. If you find mistakes on the credit report, you must correct them with the major credit reporting agencies to improve your credit.
Correcting credit report errors is how Maria Ortiz got a job after two years of rejections. When Ortiz ran her credit report, she found a mortgage on a house she didn't own and tens of thousands of dollars in debt on cars that weren't hers. By contacting the credit bureaus, Ortiz was able to correct the errors and land a job.
Everyone can check their credit report for free each year with the three major credit bureaus by visiting the Annual Credit Report site.
Finally, if a credit check costs you a job, consider reaching out to an employment lawyer in your local area to ask about your options.
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