Credit reports and employment: findings from the 2012 National Survey on Credit Card Debt of Low- and Middle-Income Households.

Author:Traub, Amy
Position:Symposium: Credit Reporting and Credit Scoring

    Today, it is common for employers to look at job applicants' credit history before making hiring decisions. Even a cursory look at a popular job-listing website reveals that employers require credit checks for jobs as diverse as doing maintenance work, offering telephone technical support, assisting in an office, working as a delivery driver, selling insurance, laboring as a home-care aide, supervising a stockroom, and scooping frozen yogurt. (1) The Society for Human Resources Management (SHRM) surveyed its members in 2010 and concluded that 60% of them check an employee's credit history when hiring for some or all positions. (2) Yet despite the prevalence of employment credit checks, researchers, policymakers, and employers understand little about what credit checks reveal to employers, their consequences for job applicants, or their overall impact on our society. This Article, drawing on new data from Demos's 2012 National Survey on Credit Card Debt in Low- and Middle-Income Households, addresses these questions and finds substantial evidence that employment credit checks constitute an illegitimate barrier to employment. (3)

    Demos's survey, conducted by national research firm Knowledge Networks between February 7 and March 2, 2012, queried a nationally representative sample of 997 low- and middle-income American households who carry credit card debt. (4) We find that among unemployed survey respondents, employment credit checks are common and people have been denied jobs because of them. We also find that poor credit is associated with factors such as unemployment, lack of health coverage, and unpaid medical bills, suggesting that employment credit reports may reveal more about the economic stresses facing a household than an individual's suitability as an employee. Our findings are consistent with previous research concluding that African Americans are less likely to have good credit than the population as a whole. (5) Finally, survey respondents with poor credit are concerned that their reports contain errors. Given the dearth of research finding that credit history correlates with meaningful employment factors, we conclude that credit history illegitimately obstructs access to employment, often for the very job applicants who need work the most.

    This Article will first provide an overview of employment credit checks and their legal basis in Part II, (6) then offer evidence that employment credit checks are prevalent and are widely used to deny employment in Part III. (7) Part IV takes a step back from our survey findings to include a critical look at employers' rationale for conducting employment credit checks, and to examine the empirical research concerning their relevance and validity. (8) Part V draws on our survey data to provide evidence that poor credit reflects factors such as race, unemployment, and medical debt. (9) Part VI explores the prevalence of errors in credit reports and the difficulty in addressing them. (10) Part VII integrates the findings of the previous sections and concludes that credit checks represent an illegitimate barrier to employment. (11)


    Credit reports were initially developed as a tool for lenders to evaluate whether a would-be borrower would be a good credit risk: By looking at someone's history of paying his or her debts, lenders decide whether to make a loan and on what terms. Accordingly, credit reports include not only an individual's name, address, previous addresses, and Social Security number, but also information on: mortgage debt; student loans; car payments; credit card accounts, including balances, credit limits, and monthly payments; bankruptcy records; bills in collection; and tax liens. Employers may purchase credit reports through any number of companies that offer employment background checks (which also may include checks of criminal records or other public data) but the credit portion of the report is typically supplied by one of three large global corporations: Equifax, Experian, and Transunion, which are known as consumer reporting agencies (CRAs). Credit scores--used by lenders and consisting of a single number calculated on the basis of information in a credit report--are not typically provided to employers.

    Employers may legally access credit reports on job applicants and existing employees under the terms of the Fair Credit Reporting Act (FCRA), which authorizes a CRA to furnish a credit report "[t]o a person which it has reason to believe ... intends to use the information for employment purposes...." (12) The FCRA requires that employers requesting credit reports get written permission from the individual whose report they want. (13) Under the statute, employers must also notify individuals before they take "adverse action" (in this case, failing to hire, promote, or retain an employee) based in whole or in part on any information in the credit report. (14) Along with this notification, the employer must provide a copy of the report and a written description of the consumer's rights. (15) After providing job applicants with a short period of time (typically three to five business days) to identify and begin disputing any errors in their credit report, employers may then act based on the report and must once again notify the job applicant of their action. (16)

    While these consumer protections are important, they are insufficient to prevent credit checks from becoming a barrier to employment because employers can reject any job applicant who refuses a credit check. And while a growing number of state laws restrict the circumstances under which an employer can discriminate against job applicants on the basis of credit history, federal law permits employers to use credit history as a basis for denying employment. (17)


    The federal government collects no public information on the number of job applicants subjected to credit checks as a condition of employment. The most commonly cited statistic on the prevalence of employment credit checks comes from the SHRM, which finds 13% of employers conduct credit checks on all job applicants and 47% conduct credit checks on some applicants. (18) But this statistic fails to clarify how many employees are actually subjected to credit checks, or the likelihood that a job seeker will be obliged to consent to one in order to be considered for a job. our survey of low- and middle-income households carrying credit card debt finds that among those survey respondents who are unemployed, one in four recalls that a potential employer has requested to check the applicant's credit report. Yet there is reason to believe that the actual prevalence of employment credit checks may be significantly higher: In the flurry of paperwork that often surrounds the job-application process, applicants may quickly forget the specifics of the many documents they signed. Indeed, many survey respondents cannot remember whether they have been asked to authorize a credit check or not. In addition, the prevalence of credit checks is likely to be greater among the higher-income households excluded from our survey because SHRM finds that employers are more likely to conduct credit checks for senior executive positions and jobs with significant financial responsibility, positions likely to be so well paid as to push household income outside our survey's bounds in many cases.

    To represent a truly widespread barrier to employment, credit checks must not only be widely conducted, but actually become a basis for losing job opportunities. We find that one in ten participants in our survey who are unemployed has been informed that he would not be hired for a job because of the information in his credit report. Among job applicants with blemished credit histories, one in seven has been advised that he was not hired because of his credit. (19) However, the true number may be higher still: While the FCRA requires employers to provide official notification when a...

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