The unemployment rate was 9.6% in September, meaning government data show a total of 14.8 million people were unemployed last month, with 41.7% of those out of work for six months or more. Good jobs are hard to find, and may be nearly impossible if you have bad credit.
Employers are increasingly turning to credit reports to help screen applicants who may be unreliable or a theft risk. Many states question the fairness of using credit reports to judge someone's job qualifications, though, and the House has proposed a bill prohibiting it.
Why employers use credit checks
Fraud is a high cost of business. The median fraud loss for U.S. companies is $160,000, according to the Association of Certified Fraud Examiners' 2010 Global Fraud Study. The study found that two common warning signs for employees who commit workplace fraud are having difficulty meeting financial obligations and living beyond their means. It also said these signs cannot be detected by traditional methods.
According to a recent survey from the Society for Human Resource Management, 60% of employers use a credit check during some stage of the interview process, and 65% of large businesses; 13% reported conducting credit background checks on all applicants. Forty-seven percent of employers who do credit checks do them on select job candidates.
The majority of businesses who do credit checks run them after a contingent job offer and allow job candidates to explain their credit results before the hiring decision is made.
According to the survey, only specific credit information affects hiring decisions, with pending debt lawsuits and accounts in debt collection being the biggest red flags. Very few consider home foreclosures and past medical debt when making an employment decision.
The Fair Credit Reporting Act lets employers run a credit check on applicants, but employers must have their consent. If the employer considers denying a job because of a credit check, they have to provide a copy of the report and a written description of the applicant's rights before taking adverse action. The job-seeker has the right to dispute the accuracy or completeness of information the agency furnished, and to an additional, free report from the agency within 60 days.
The act also allows employers -- following the same rules -- to use credit reports to evaluate employees for promotion, reassignment and retention.
Bill H.R. 3149 was introduced this summer to amend the Fair Credit Reporting Act to prohibit the use of consumer credit checks against prospective and current employees for the purposes of making adverse employment decisions. The bill is in committee.
Lawmakers in 16 states have proposed bills to ban credit checks. Hawaii and Washington already ban them on most applicants.
- Check your credit report for errors. An error on your credit report can prevent you from getting a job. You can get a free credit report each year from the three credit agencies -- Experian, TransUnion and Equifax -- at annualcreditreport.com.
- If you find errors, alert the credit-reporting bureaus and creditors in writing. Correcting errors takes time, so review your history at least a month or two before you expect employers, or lenders, to ask for it.
- Understand what is in your credit report so you can explain problem areas. Your credit report includes debt, payment history, number and types of accounts, including credit cards. If you have been through lawsuits, judgments or bankruptcy -- bankruptcies remain on your report for 10 years -- it will also include these.
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