It is a harsh catch-22, particularly in today's moribund economy: many companies routinely rule out job applicants who fail a credit check. That means that unemployed people who can't pay their bills may actually be too poor to get a job.
Critics, from labor unions and the U.S. Equal Employment Opportunity Commission (EEOC) to advocates for the unemployed, say the use of credit checks makes it hard for people who are struggling to turn their lives around and that it should be treated as discrimination. They have been pushing for state laws and federal policies to bar pre-employment credit checks; this week they scored their biggest victory yet when California enacted a law restricting the use of credit reports in hiring.
Supporters, including business, industry trade groups and large credit bureaus, counter that employers should be able to weed out workers with a history of money troubles. They argue that credit histories are an important tool for employers to use, particularly for jobs that involve handling money, and that regulating their use could make employers less willing to hire.
The reliance on credit reports in hiring is becoming widespread. A survey by the Society for Human Resource Management found that 60% of employers do credit checks for at least some positions.
The use of credit checks is growing at a time when the economy is making it hard for people to keep their records clean. Delinquency rates on loans have been rising, according to a report issued last week by the American Bankers Association, driven by a weak job market and rising food and gasoline prices.
The biggest flaw with the use of credit checks in employment screening is that it makes it difficult for many good people who need work to find it. Employers who do credit checks operate under the assumption that having had trouble paying bills is a character flaw, but there is scant hard evidence to back this up.
Many credit problems are due to factors outside of a person's control. Sarah Crawford, an attorney with the Lawyers' Committee for Civil Rights Under Law, told a House committee last year that credit reports fail to provide sufficient context. "A credit report would not explain that a factory worker lost his job when his employer went out of business," she said. Or that "a man's credit was destroyed because he was the victim of identity theft or a predatory lending scam." Or that "a woman lost her job and her health coverage before developing breast cancer and incurring astronomical medical bills."