They’re riddled with errors. They’re difficult to correct. And they may be keeping you from getting a job.
But a spotty credit report could cease being a reason for employers to reject applicants, if legislation introduced Tuesday by Sen. Elizabeth Warren (D-MA) and Rep. Steve Cohen (D-TN) becomes law.
“Credit reporting companies that sell Americans’ personal data to potential employers have pushed the narrative that a credit history somehow provides insight into someone’s character,” the lawmakers wrote in an op-ed announcing the Equal Employment for All Act. “In fact, research has shown that an individual’s credit has little to no correlation with his or her ability to succeed in the workplace.”
The bill would prohibit hiring managers from seeking credit information on potential employees unless state law requires a credit check or the job in question requires a security clearance. The latter situation is one of the few where a person’s credit history is actually relevant to their qualifications for employment: Someone in financial trouble is more vulnerable to bribery or blackmail.
But for all other classes of work, the lawmakers argue, credit checks are not only irrelevant but inherently prejudicial. Economic hardship – sudden medical expenses, say, or getting fired – doesn’t automatically ding a person’s credit. Wealthier people with savings to fall back on can weather such bruises without falling behind on bills or running up expensive credit card debts. But for those of fewer means, such bad luck often leaves a permanent mark on the dossiers kept by credit reporting agencies.
And even if credit histories were a meaningful measure of personal competence rather than a reflection of underlying economic status, the system that employers are calling upon for this information is marred by flaws.
A Federal Trade Commission (FTC) study released in 2013 estimated that as many as one in four Americans have “at least one potentially material error on at least one of their three credit reports.” While about 80 percent of those who sought a correction eventually got the error fixed, there are multiple different credit bureaus that may have to be contacted to address an error, and the process can be convoluted.
If the ratio in their sample holds up across the entire population, that’s more than 40 million people whose credit history is lying about where they’ve been and what they’ve done. While many of the errors from the FTC study were not significant enough to affect a person’s credit score, the rampant inaccuracies in credit bureau dossiers further undermine their utility for judging a person’s character.
But using credit checks to screen job applicants is incredible popular despite these deficiencies. Nearly half of all hiring managers surveyed in 2012 by the Society for Human Resource Management said their company checks candidates’ credit histories. The figure was down from 2010, when a full 60 percent of those surveyed said they use the tactic.
With the number of people looking for work far exceeding the number of available jobs ever since the financial crash and Great Recession, it’s logical that the people who hire workers might look for quick short-cuts to cull the herd. But like the check-box for former felons, building a credit check into hiring creates a nearly automated system for rejecting a large swathe of the applicant pool.
“Americans should be able to compete for jobs on their merits, not on whether they have enough money to pay all their bills,” Warren and Cohen said of the proposal, which Cohen has pushed for since 2009. “Much of America – hard-working, bill-paying America – has damaged credit. It is wrong to shut them out of the job market.”