WAYS AND MEANS: BAD CREDIT BLUES?
By Carolyn M. Brown
Many job candidates are surprised to find that companies are requesting permission to check their credit report as part of an employee background check. They are wondering if they could really be turned down for a job based on bad credit. More importantly, they're asking themselves: "Is this legal?"
The short answer: yep. When it comes to employment background checks, don't assume you're safe just because you don't have a criminal record. According to the Federal Trade Commission (FTC), as long as an employer complies with the Fair Credit Reporting Act (FCRA), they may use your credit report as character reference of sorts, to decide whether or not to hire you. If there is "good cause" your credit report may come into play in decisions to promote, reassign or retain you as an employee once you are on the job.
In our society, where one's credit rating is everything, a company is allowed to get the financial 411 on you whether you're applying for credit, insurance or a job, renting an apartment, or buying a home. Employers use a credit report to assess the overall stability and responsibility of an employee. Therefore, a bad credit report might be an indication that because you couldn't meet your financial obligations you might not meet your job obligations either. Also, running a credit check is the easy way out of having to do the more traditional intensive reference-checking process. In other words, it gives an interviewer another way to discount other candidates applying for the same job.
Requests for pre-employment credit verification come mostly in government and financial jobs where there will be fiduciary responsibilities, as in a chief financial officer or comptroller's role. But in a tight economy and highly selective job market, more companies these days, in industries from accounting firms to retail shops, are doing credit checks.
Roughly 50% of employers utilize credit reports in their hiring decisions at or below the management level, estimates Victoria Lowe, president of Alert Staffing, a $43.3 million national employment agency based in Culver City, California. Lowe adds that figure leaps to 70% for executive-level staffing.
Employers check potential and current workers for several reasons, and everybody looks for something different. For instance, a financial or accounting company may be more interested in your payment history and any bankruptcies, while a marketing or sales company may be looking for stability and how many times you've moved (especially out of state) or changed jobs. Some employers are using credit checks to make decisions a simple as whether or not to give certain a company-issued debit or credit card.
Employers get your credit report by paying a fee to consumer reporting, credit reporting or employment background check agencies. Keep in mind that your credit report contains a lot more information about you beyond an overdrawn bank account or late auto-loan payment. The data gold mine includes your date of birth; your current and previous addresses; your employment history; and a list of those to whom you owe money, including landlords, utilities and hospitals. While a late payment or two likely won't hurt your chances at career advancement, employers are looking for things like bankruptcies, liens and judgments through civil or other litigation, and failure to pay taxes or child support. All of which may justifiably be considered breeches of judgment.
Employers also can use a credit report as one way to verify the accuracy of information you provide on an application or résumé. Some estimate that 30 to 40% of all job applications and résumés include some false or inflated facts. All of this means that employers are less likely to accept anyone's word at face value.
Congress amended the FCRA only as recently as 1997. It now requires employers to make individuals aware that consumer reports may be used for employment purposes. Job candidates must agree to such use in writing. This amendment also requires that applicants be notified if their credit report affected the decision-making process, resulting in a negative employment decision, such as being denied a job or terminated. Before an employer can make any formal rejection or take any adverse action, you must be given a pre-adverse action disclosure that includes a copy of your report and a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act." At this point, you have the right to dispute the accuracy or completeness of any information that a credit reporting agency (CRA) furnished and the right to see the report from that agency upon request within 60 days.
Employers must keep the results of your credit report confidential and can't put information about it in your personnel file. Note, according to the Federal Bankruptcy Act, an employer can't discriminate against you solely because your credit report revealed you sought protection under the Bankruptcy Act. Also, discrimination laws apply if any employer is using credit checks to discount minorities.
Some may argue that this procedure of using credit checks to hire or fire an employee is invasive at best, and a violation of their civil rights, at worst. And the truth is, if you are strongly opposed to it, you have the right to say no. Just be aware, though, that refusing to sign the agreement allowing an employer to check your credit report could very well be used against you in the employment process.
The best defense is a good offense. Get a copy of your credit report. Ideally, you should scrutinize your credit report several times a year to check inaccuracies as well as areas that an employer might consider red flags. Financial experts recommend that you get a copy of your report from each of the three major credit bureaus, since each may have different information: Equifax (800-685-1111), Experian (888-397-3742), and TransUnion (800-888-4213).
Try to fix any indiscretions before you're denied a job. Request a dispute form or submitting your dispute in writing, along with copies of supporting documentation. If an investigation reveals an error by the agency, ask that a corrected version of the report be sent to anyone who received your report within the last six months. If the investigation does not resolve the dispute, have the credit bureau include your version in your file and in future reports.
Your other recourse when going through credit verification is to make certain the employer closely follows the FCRA guidelines. If these procedures are not followed, a person can sue for damages in federal court to include court costs and legal fees. You may also seek punitive damages for deliberate violations. For more information, visit the Federal Trade Commission and the Privacy Rights Clearinghouse.
What if you simply have less-than-stellar credit? Payment history is the most important factor in your credit rating, so your first priority should be to pay your bills on time. Try to pay more than the minimum due on each bill. You should also focus on paying down your debt, not increasing it. (Hide your credit cards if necessary.) The longer you exhibit good credit behavior by paying your bills and managing your credit wisely, the more your bad credit will improve.
Unfortunately, your credit report doesn't explain that you couldn't meet your financial obligations for unavoidable reasons such as a long-term layoff or illness. It's up to you to plead your own case in those situations.
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