Dan Denton is stuck in a vicious cycle: He’s behind on his bills after losing his job. But lousy credit is spoiling his chances of finding new employment.
Recruiters from a St. Louis-based investment firm rescinded an offer after looking at his credit history, which has been mauled by overdue card payments and an impending foreclosure on his house. He and his wife, Dana, filed for bankruptcy protection this month to try to hang on to their home.
The credit report is becoming the latest hurdle for unemployed workers in a dismal U.S. job market. Although estimates vary, experts say up to half of employers use credit screening to weed out potentially troublesome hires, and the practice is on the rise.
Money problems could signal disorder in an individual’s personal life that could translate into slipshod work habits, some staffing experts said. A sterling credit history, they said, points to a worker who is more likely to be disciplined, trustworthy and reliable.
Screening employment prospects this way is legal in most of the country as long as it is disclosed to applicants, who must give permission for a credit check to be run.
But some experts said that there’s no clear link between credit history and job performance and that reports don’t paint a complete picture, omitting details about divorces, medical bills or even identity theft.
Yet many employers say they aren’t willing to take any chances.
Companies and organizations lose a median of billions of dollars annually to employee fraud, according to the Association of Certified Fraud Examiners.
Asset misappropriations, including skimming from the till, pilfering equipment and the like, account for 90 percent of all cases. The median loss is $150,000 annually.
The Society for Human Resource Management estimates that 40 percent to 50 percent of employers, including the U.S. government, run credit checks on potential hires.
Most companies pull reports produced for them by one of the major credit bureaus. Federal law permits employers to see if job prospects are paying their mortgages, credit cards and other bills on time.
But they’re not allowed to see applicants’ overall credit scores and must notify candidates if they were rejected because of their credit.
But some firms bury the initial credit-search request, usually just a signature line, inside a hefty application, so that job seekers frequently aren’t aware they’re granting permission, said Adam Klein, an employment attorney with Outten & Golden in New York. He said companies often don’t inform prospects if their lousy credit was what got them rejected.
“And so you have sort of a hidden problem,” Klein said, “a very clear pattern of using credit score and credit history for employment suitability, [and] almost no information available to the applicant who was denied employment based on that.”
He and others question the usefulness of such reports. There’s no clear correlation between credit history and job performance, according to a 2003 study by academics at Eastern Kentucky University.
And the dossiers are prone to errors. More than one-third of companies surveyed by the Society for Human Resource Management in 2004 said that they found inaccuracies in the credit histories they pulled on job prospects.