In most places, it's perfectly legal for a prospective employer to pull your credit report and decline to hire you if they don't like what they see. The trouble is, credit reports are often rife with errors (if you recall, we told you how to fix those credit report errors), some of which can drag down your score.
What's more, in today's economy, many unemployed Americans have been struggling just to keep their heads above water, and their credit reports reflect that. Potentially being barred from landing a new job because of a poor credit score brought on by losing a previous job seems like adding insult to injury.
Now, though, the state of Oregon has seen this catch-22 for what it is. The state passed a ban, which went into effect July 1, prohibiting employers from using credit checks as part of their screening process. Oregon is only the third state to ban this practice (Hawaii and Washington were first), but Angela Martin, economic fairness director at grassroots advocacy group Our Oregon, says seven other states are exploring the possibility (although bans aren't expected to pass in all those states).
Ira Rhinegold, executive director of the National Association of Consumer Advocates, told WalletPop in a phone interview that there are numerous problems with employers relying on credit checks as a screening device for job applicants. First of all, Rhinegold says, "Accuracy is a significant problem. We know there's a lot of misinformation." He also expresses skepticism that credit reports are a good predictor of job performance, pointing out that mortgage brokers relied heavily on credit reports when creating the loans that collapsed and triggered the housing crisis. Rhinegold supports Oregon's ban, saying, "I think there's a real danger of misuse."
Martin, also in a phone conversation with WalletPop, talked in more detail about that potential for misuse. For instance, employers could see how much you owe on your house, how many credit cards you have and what their limits are, and other details most people would reasonably assume are private. Allowing credit checks could also promote discrimination in hiring, she says; for instance, if a hiring manager sees that a person has a significant amount of medical debt, they might assume that the person is in poor health and not hire them out of the fear that the company's insurance premiums would rise.
Finally, Martin pointed out that many Americans have been out of work for a very long time; in all likelihood, their credit reports will reflect that by showing a high amount of debt, missed payments or other negative attributes. She says it's unfair to penalize these workers and bar them from future employment because of their economic hardship brought about by the recession.
"Through no fault of their own, many people's credit reports are a little battered these days," Martin says. Now, at least in three states, employers won't be able to view that financial information when deciding who to hire.
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