Can My Bad Credit Legally Affect My Job Opportunities?

Can My Bad Credit Legally Affect My Job Opportunities?

For some, it is still rather difficult to find a job in the U.S. Even though the economy has made significant shifts in the area of unemployment, some population segments are still searching for jobs throughout the nation. When applying, job applicants are interested in putting the best foot forward to get the best job available. When bad credit becomes an issue, however, a number of qualified candidates can be eliminated.

According to the EEOC, the use of credit reports during the hiring process could be a violation of federal law. Under certain conditions, credit reports can exclude or provide differential treatment for groups protected by Title VII of the Civil Rights Act. Title VII protects against discrimination in the workplace on the basis of race, color, national origin, sex, age, disability and religion.

It is possible that credit reports can adversely affect the way that women and people of color receive job opportunities. That is why some legislators are taking steps to propose new laws that would curb the use of credit reports in the employment process.

Little-Known Facts About the Use of Credit Checks in Employment

That said, there are a number of other facts about the use of credit reports in employment that may not be well-known. For instance, most employees do not know that credit scores are rarely revealed for employment purposes. In fact, the credit reporting done as part of a background check can differ significantly from the traditional credit reporting for car or home loans or other financial procedures.

Additionally, the credit checks completed for employment are often done well after the job candidate is interviewed. In these instances, the credit check is used in conjunction with a background check in order to conduct a due diligence hiring process. Due diligence means that the employer has done all it can to ensure that there is no reason not to hire a job candidate.

Under certain conditions, that due diligence can pay off greatly. For instance, when the position requires handling money or observing fiduciary duties, an employee uses a credit check to protect against hiring a candidate that could be a potential threat to the company due to high risk of identity theft or embezzlement. In fact, this is the main exception to general rules outlined in the main law governing the use of credit reports in employment, the Fair Credit Reporting Act (FCRA).

Getting the Facts on the FCRA

According to the FCRA, the use of credit reports for employment is a permissible and lawful practice. The law was created to ensure that credit reporting remain fair and accurate in support of the nation’s banking system. However, there are a number of instances that could make a credit report illegal in employment even under the FRCA.

For example, the FRCA requires that credit reporting in employment only be used when not in violation of any federal or state equal employment opportunity regulation. This means the use of credit reporting for employment purposes cannot violate Title VII or any other state constitutional provision or state statute prohibiting discrimination in employment.

The FRCA also sets other conditions for the use of credit reports for employment purposes. The employer is required to disclose all the rights and remedies to which an employee is entitled and to ensure that the credit report is obtained only with the employee’s consent. This disclosure must be made in writing and be clear and conspicuous according to the FRCA.

Additionally, when a credit report is used in order to take adverse action against an employee, such as demotion, or failure to hire, the FRCA makes certain requirements known. An employee must be provided a copy of the credit report and an explanation in writing about the rights available to the employee or prospective hire as a result of the adverse decision.

New Law May Change the Landscape of Credit Reporting for Employment Purposes

When the EEOC held an informative hearing on the use of credit reporting employment in 2010, it revealed a number of interesting statistics. According the the hearing’s reports, 60 percent of employers used credit reporting as part of the employment process in 2010. Thirteen percent of the employers surveyed used credit checks on each and every job applicant.

These numbers show significant increases over previous years indicating that the use of credit checks is on the rise. Further, research has shown that the use of credit reporting can create a catch-22 situation for unemployed individuals. Those facing unemployment are more likely to have credit issues and, when applying for jobs, are less likely to obtain one due to required credit reporting.

Lawmakers have taken notice and recently introduced several forms of legislation to address the issue. Chief among these is Senator Elizabeth Warren’s bill, the Equal Employment for All Act. The new bill, introduced in December 2013, would prohibit employers from requiring new, prospective employees to disclose credit report information. The aim of the bill is to ensure that hiring is based on skill and experience rather than on past financial issues.

Indeed, the use of credit reports can often place employees in a bind – especially employees of color. The use of credit reporting often disportionately affects African-Americans and Latinos – an effect of years of racial discrimination that has led to poor credit ratings among these households. Research has shown that a poor credit report has little significance to the ability of an employee to perform well on a job.

Other groups are also set back by credit reporting for purposes of employment. Women, who are often the hardest hit after major financial crises, can be negatively affected when good credit is made a condition of employment. Seniors, too, could have issues with landing a job when that job is based on a credit report.

Can a Bad Credit Report Legally Affect Job Opportunities?

The short answer to this question is, it depends. With over half of American employers engaged in the use of credit reporting to screen applicants and determine job worthiness, chances are an employee may face not being hired if credit is bad. However, employer must abide by the laws outlined in the FCRA in order to ensure that use of credit reports for purposes of employment remains lawful or face costly litigation.

Manuela Varela

Relations Manager

Manuela Varela has been with Shegerian & Associates since August 2022. She is responsible for outreach and marketing on behalf of the firm and manages relationships between firms and referring attorneys. She is also responsible for developing business opportunities and affiliations. Manuela graduated from Loyola Marymount University with a degree in Economics and Political Science.