Is it right for an employer to check a potential employee’s credit report, as an assessment of their character? Two weeks ago, Elizabeth Warren, Democratic Senator from Massachusetts, hit the headlines with an op-ed in support of the Equal Employment for All bill she helped introduce at the end of 2013, which would outlaw such an action. As it stands, employers in many states are able to check a potential employee’s credit report with that person’s consent. A 2012 survey put the number of employers using credit checks in some form in an employment decision at close to half.
If Warren had her way though, that number would be nearly zero, her argument being that using credit data in employment decisions discriminates against people who have fallen on hard times. She raises the very reasonable point that there has been no confirmed link between negative marks on a credit report, such as missed payments or a bankruptcy, and poor job performance.
At Credit Karma, we help over 40 million American consumers with access to the tools and information they need to improve and make the most of their credit. We support Senator Warren’s initiative 100 percent; from our perspective, disqualifying someone from a job based on their credit profile punishes people and perpetuates a negative cycle of poverty.
Low credit is a challenge that many Americans face, but with the right support and access to information, consumers can improve their situations.
Low credit should be considered a temporary situation, not an objective statement about a person
If you stop paying your debts, whatever your knowledge of the finer details of credit may be, you probably have some expectation that your credit score will likely drop and that it may become harder for you to take out new lines of credit. There’s a good chance that economically you’ve fallen on harder times and had to weigh tough choices against each other. With access to a stable income, alongside access to the right financial tools and mechanisms, low credit should be a temporary situation. Handing down an absolute punishment by declaring a person unemployable because of their credit report is making a definitive statement on something based upon only a snapshot. The more sensible action is to help someone improve their situation, rather than to push them down further by declining them for a job.
Credit reports are complex and can point to many different truths
Finances are complicated and credit reports factor in information from a full spectrum of a person’s financial life. Along with how reliable you are at paying your bills on time, a credit report can include any accounts you have in collection, bankruptcies and even civil judgments against you or tax liens. It looks at how long your credit history is, how many lines of credit you have, how many lines of credit you have applied for and how much of your credit card limit you’re using. Credit profiles can be affected by so many different things: you might have had a small unpaid account from your college days gather interest and get sent to a debt collection agency because you didn’t have easy access to your credit information. You could have gotten sick while you were out of work and incurred medical debt, lost your home during the housing crisis or gone through an expensive divorce that has set you back financially. On top of all that, the FTC estimates that as many as 1-in-4 consumers have errors on their credit reports that could affect their credit scores, so the information might not even be accurate to begin with. Negative marks on a credit report are about so much more than simply being financially responsible. There’s no way to distill them all into one easy assessment of a person’s character.
There’s never been any proof that a bad credit profile correlates with bad job performance
As Elizabeth Warren notes, there’s no correlation whatsoever between someone’s financial situation and their on-the-job performance. If you have medical debt, have a house go into foreclosure, or miss a credit card payment, it doesn’t make you any less competent at your job. Some proponents of using credit reports point to things like a 2011 PriceWaterhouseCoopers survey where 29 percent of US workers reported that personal finances had been a distraction at work, and almost half said that they had handled personal finance matters during work hours. But even that is a stretch. A company’s employees have complex lives outside of their work, which can be affected by all manner of problems, financial or otherwise. It is also an overly officious line to set, that employees can handle no personal business at work.
Denying someone a job based on a bad credit report is perpetuating a vicious cycle
When you put it all together, making a firm ruling about someone’s employability based on a temporary credit situation, putting a fixed judgment on a complicated set of information and establishing a correlation between financial health and job performance where no real relationship exists help perpetuate a vicious cycle of poverty, punishing people who need help.
If you are out of work and your credit situation is suffering under the burden of negative marks on your credit profile, the thing that is going to be of most help is a stable income and steady employment (alongside access to the right tools and information to take control of your financial health). Denying someone a job because of those negative marks is only placing a further financial burden on them. It is the wrong decision to make, and it’s only making it harder for those in need to help themselves.
The following article is by Credit Karma founder and CEO Ken Lin and originally appeared on Inc.com on October 6, 2015.