By Herb Weisbaum ConsumerMan
msnbc.com contributor
updated 8/4/2010 7:24:18 PM ET 2010-08-04T23:24:18

Apply for a job and you expect the prospective employer to verify the information on your resume, contact references and maybe even do a criminal background check. But how do you feel about letting the company scrutinize your credit history? 

These days, if you make it on the short list of acceptable candidates, there’s a good chance you’ll be asked to allow a credit check.

According to a recent survey by the Society for Human Resource Management, 60 percent of the 430 companies responding said they examine the credit files of some or all job candidates. This is almost always done when the job involves financial or fiduciary responsibility, such as banking, accounting or handling cash. Credit checks are also required about half the time for senior executive positions.

Rights under
federal law

The survey shows potential candidates are likely to be passed over if they have outstanding judgments, accounts in collection or a bankruptcy in their file.

“They’re looking at the debt level compared to the potential income from the job,” explains Lester Rosen, CEO of Employment Screening Resources, one of the country’s largest background screening services. “If someone is under water financially as shown by the credit report, the thought is perhaps there could be a motive to embezzle or steal.”

Rosen says a credit check is one more way an employer can be sure they’re hiring someone who is honest and trustworthy. It also provides some legal cover if that employee turns out to be dishonest.

“What’s the jury going to hear if there’s a lawsuit?” he says. “The jury is going to hear that for a few bucks the employer could have run a credit report and the crime could have been prevented.”

And yet, Rosen’s firm does not encourage its clients to routinely check credit reports. Why? Because they often contain errors. And it can feel like an invasion of privacy. His advice to employers: Limit credit checks to positions where it might be relevant, such as those that involve money.

Is there a correlation between how you manage your credit and what type of employee you will be? Consumer advocates say you’d be hard pressed to find any proof.

“Someone’s credit history, for the most part, is not relevant to their employability,” says Paul Stephens, director of policy and advocacy with the Privacy Rights Clearinghouse.

Because of the poor economy, millions of people have been forced to deal with long-term unemployment. Some have managed by paying bills a little late. Others have filed for bankruptcy protection. All of this will show up on their credit reports.

“If the effect of this negative information is to preclude them from obtaining employment, it only makes a bad situation worse,” says Stephens.

Some real life advice
Get copies of your credit reports and review them before you start applying for work.  You are entitled to one free credit report from each of the big three credit reporting agencies (Experian, Equifax and TransUnion) every 12 months. Use the site annualcreditreport.com to request your report.

“So at the very least you will see what a prospective employer is going to see,” says John Ulzheimer with Credit.com. “And if there are any errors you can get them corrected.”

What if your report contains negative information that’s accurate?  You can’t change it, but you can decide how to present it.

Don’t talk about your credit history during the interviewing process advises career counselor Robin Ryan, author of the best seller “60 Seconds & You’re Hired!”  Her advice: Wait until there’s an offer on the table. That’s the time explain it. Ryan gives this example:

“You can say, ‘I was married, my husband and I ran into a lot of trouble and when we went through our divorce we had to file bankruptcy.’ Leave it at that. A lot of time times the employer will understand.”

Remember, the employer cannot check your credit report unless you provide your Social Security number and give written permission. While you can say no, the reality is that it will probably cost you the job.

If you say yes, rest assured the company will not get your credit score and will not have access to individual account numbers. The report will list where you lived, the credit accounts you have (or had), late payments, collections, bankruptcies and foreclosures.

Privacy versus security
Lawmakers in several states have already decided to limit access to credit files. In Oregon, employers cannot use someone’s credit history to hire, fire, promote or set their salary. In Washington and Hawaii, it’s illegal for employers to look at a job candidate’s credit history unless that information is substantially related to the job.

In California, where the unemployment rate is more than 12 percent, the legislature is considering a bill (AB 482) that would ban the routine use of credit reports during the hiring process. It would still allow some pre-employment credit checks: for jobs that involve access to confidential information, money or other assets, as well as law enforcement and management positions.

“Stopping people from becoming gainfully employed because of blemishes on their credit report is shameful,” says the bill’s sponsor, Assembly member Tony Mendoza (D).  “A credit check cannot determine a person’s trustworthiness or their work ethic.”

Those who oppose such laws claim they are unfair to business and say there is no evidence employers routinely revoke job offers based on an applicant’s credit report.

Mendoza says based on what he hears from constituents, he’s convinced an increasing number of people are being hurt by this practice. He hopes limiting credit checks will remove “an unnecessary barrier” for those trying to find work.

When the Maryland legislature convenes in January, Sen. Mike Lenett (D) plans to re-introduce a bill to ban most pre-employment credit checks. Right now, 220,000 people in his state are unemployed.

“This is a cruel and unfair Catch-22 that creates a vicious cycle,” he says. “People cannot fix their financial problems unless they get back to work, but they can’t get back to work because of their financial problems. Credit reports were designed to determine credit worthiness, not job worthiness.”

My two cents
Employers need to make sure they find the right candidate for the job. I understand that. And when the job involves sensitive information or money, I can see the justification for using every screening tool at your disposal, including a credit check.

But I worry that this invasive screening process is becoming more common and is being used for jobs that do not justify it. Critics call this “credit profiling” — a legal way to find and screen out lower-income applicants.

As far as I can tell, there is no demonstrated correlation between credit history and successful job performance. A person with credit problems might be more motivated to do good work.

I think we need some rules to regulate this process and keep things from getting out of hand. I’d like to see Congress act. But in the meantime, I salute state legislatures that are wrestling with this highly charged issue.

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