States Move to Ban Credit Screening for Job Applicants

Photograph by Justin Sullivan/Getty Images

Credit reports weren’t designed to be job-screening tools. But about half of employers now use them when making hiring decisions, according to a 2012 study by the Society for Human Resource Management. The practice cuts across all sectors of the economy, from high-level management to office assistants, home health-care aides, and people who work the counter serving frozen yogurt.

That’s troubling, because the information contained in a credit report doesn’t necessarily say much about a person’s ability to perform at work. The progressive think tank Demos, which published a report on employer credit checks in May, found that people who have bad credit are more likely to have somebody in their household who is out of work, lacks health insurance, or has unpaid medical debt. Demos argues that difficult economic circumstances aren’t a good—or fair—reason to deny a job to a qualified person.

A growing number of states and cities are starting to buy that argument. Last month, Nevada became the 10th state—joining California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont, and Washington—to ban employers from running a credit check on a prospective hire. Nevada’s law, which goes into effect in October, allows applicants who find out their prospective employers used their credit information to deny them a job to sue the company and force it to hire them.

Eight of the states that ban the practice have done so over the past three years. Chicago also passed a law last year, though the city exempts jobs that require handling money from the new rules. The New York City Council and the New York State Legislature are both considering bills that would severely limit employers’ abilities to use credit reports to screen applicants. At the federal level, Representative Steve Cohen (D-Tenn.) introduced a bill this February that would ban employers from using both credit checks and bankruptcy filings when evaluating employees.

It’s hard to know how companies use credit reports to make decisions. The Society for Human Resource Management found that 80 percent of employers say they hired people whose credit reports contained damaging information about them. While a company must tell you whether it is checking your credit report, it doesn’t have to tell you why it turned you down for the job. The Demos study found that one in seven people were told they weren’t hired because of their credit. But because employers aren’t required to let you know why they made their decision, the actual number is presumably much larger than that.

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