Trapped: It’s hard to get a job if your credit is bad
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Recruiters from a St. Louis-based investment company recently rescinded an offer after looking at his credit history, which has been mauled by overdue card payments and an impending foreclosure on his Inland Empire house. He and his wife, Dana, filed for bankruptcy protection this month to try to hang on to their home.
“Of course your credit’s going to look bad when you’ve been unemployed for months,” said Denton, 60, a former fundraiser for the Crystal Cathedral in Garden Grove. “But what relevance does that have on your performance?”
The credit report is becoming the latest hurdle for unemployed workers in a dismal U.S. job market. Up to half of employers use credit screening to weed out potentially troublesome hires, though estimates vary, and the practice is on the rise.
Money woes could signal disorder in an individual’s personal life that could translate into slipshod work habits, some staffing experts said. Companies lose billions annually to employee theft. A sterling credit history, they said, points to a worker who is more likely to be disciplined, trustworthy and reliable.
Mary M. Massad, managing director of screening services for personnel management company Administaff Inc., said credit checks help companies hire “the highest-quality individuals.”
“It’s . . . about being proactive in order to avoid trouble down the line,” she said. “Companies . . . want an insight into how an individual conducts their own life, because that’s typically how they’re going to conduct business inside your business.”
Screening employment prospects this way is legal in California and 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 the reports don’t paint a complete picture, omitting details about divorces, medical bills or even identity theft.
Nancy Novak said that when prospective employers check her credit history, they see a mountain of debts and late payments, including $30,000 in credit card bills. What’s not evident, she said, is that she accumulated most of it in a failed effort to keep her small business afloat.
A former furniture broker in Southern California, she has been unemployed for two years, sending out hundreds of resumes to no avail. She said about a third of those employers have asked her permission to run a credit check. It’s information she’d rather not volunteer. Still, she always says yes, figuring companies will reject her outright if she doesn’t cooperate.
Novak, who recently moved into her parents’ Laguna Woods home, said she wasn’t sure if her credit problems alone have cost her employment. But she resents the notion that a checkered report flags her as a potential thief.
“Give me a break -- I don’t have a criminal record,” said Novak, 57. “My expense reports are going to be squeaky clean. I’m not going to do anything to turn over the apple cart.”
Many employers aren’t willing to take that chance.
Companies and organizations lose a median of 5% of their annual revenue -- billions annually -- to employee fraud, according to the Assn. of Certified Fraud Examiners.
Asset misappropriations, including skimming from the till, pilfering equipment and the like, account for 90% of all cases.
The median loss -- half of businesses lose more, half lose less -- is $150,000 annually.
The Society for Human Resource Management estimates that 40% to 50% of employers, including the U.S. government, now run credit checks on potential hires.
Applicants for security officer positions at the Transportation Security Administration are ineligible for employment if a credit check turns up more than $7,500 in past-due debt, delinquent taxes or late child support payments.
Existing security officers must also pass random credit checks to keep their jobs.
“People are more concerned about who they’re hiring today,” said Norm Magnuson, a spokesman for the Consumer Data Industry Assn. “There’s a more aggressive bar. If someone’s going to be a teller in a bank or a clerk in a jewelry store, if they’re overextended in their personal financial matters it might be a precursor to a moral hazard.”
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 they 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 T. 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 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.
“As an employer, you may be shooting yourself in the foot,” said Deb Cohen, chief knowledge officer at the industry group.
Connecticut, Hawaii and New York have bills in play in their state legislatures that would restrict pre-employment credit checks. Employer groups in those states aren’t happy.
“It’s a step in the wrong direction at one of the worst economic times for employers,” said Kia Murrell, labor and employment counsel for the Connecticut Business & Industry Assn. “True, your ability to type has nothing to do with your ability to pay a MasterCard bill, but credit references should be available as one of many factors used to evaluate you.”
But to desperate applicants, a blemished credit check can mean the difference between continued struggle and a job offer.
A year ago, Denton had a solid credit score above 700, according to old Experian reports. But now, for the first time in their lives, he and his spouse are out of work.
Their Menifee, Calif., home plunged $250,000 in value. The couple are preparing to move into a trailer and are living on less than $1,000 a month in unemployment benefits.
“You think there’s no chance of being out of work more than a month,” Denton said. “But as it drags on, we’re just completely in the bunker.”
The couple’s savings lasted three months. Although Denton said he tried to work out payment plans, at least three of the couple’s credit cards are now in collection. Interest rates on others have soared.
Meanwhile, he has agreed to at least a dozen credit checks, knowing that recruiters won’t find much that’s flattering.
“My wife’s credit destroys mine and mine destroys hers,” he said.