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Employee Credit Checks

It is the basic “Circle of Despair:”You are a qualified applicant but you cannot get a job because you have poor credit and each employer you have applied to does a credit check; but how can you improve your credit if no one will employ you?

This is a situation facing many thousands of people, and it is only likely to get worse as the credit crunch leads many credit issuers to pull back credit lines or eliminate them altogether, neither of which improves anyone's credit. In fact, with the way the practice is increasing and the fact that it is facing so many job seekers, five states and the federal government are looking at ways to lessen the scope of these credit checks or eliminate this sort of screening altogether.

According to the Society for Human Resource Management, around 43% of US employers check for overdue payments on anything from mortgages and rent to credit cards and student loans, an increase from 36% in 2004. Supporters consider it due diligence, like checking a candidate's references. Opponents, however, see the issue quite differently.

Hawaii state Rep. Marcus Oshiro said about the checks: "It's almost like being forever sentenced to debtors' prison."

Connecticut state Rep. Matthew Lesser said: "There's an awareness that a lot of people have bad credit for reasons that have nothing to do with their worth as an employee."

There is also concern that these credit checks are being used to discriminate against applicants for other reasons such as race. "There are indications they do discriminate on the basis of race, and we are looking into that," EEOC lawyer Dianna Johnston said. According to a 2007 Freddie Mac study, 48% of blacks had "bad" credit records compared with 34% of Hispanics and 27% of whites.

Other than trying to insulate themselves from a possible negligent hiring action, what does running an applicant's credit really do for them? Proponents hold that it keeps a company from hiring a troubled applicant, someone who would be a problem at work. Really? How do you tell from a credit report the difference between someone who has had a run of hard times and a genuine, run-of-the-gutter lowlife?

You can't. It's that simple. Perhaps, though, that is alright when discussing positions that handle money or security sensitive information, roles where sterling trustworthiness is a must—a trade-off between fairness and security. But what about positions that don't involve that kind of sensitive work? Now you are back to the question, what does this intrusion into an applicant's personal life get you?

Whatever your answer is, the federal government, Hawaii, Connecticut, Texas, Missouri and New York are preparing to tell you that whatever it is, you have to have a compelling reason to call for a credit check. "Employers do the checks routinely without showing there's any connection to the job," said New York state lawmaker Michael Benjamin, whose bill would restrict credit checks.

Washington enacted restrictions in 2007 and it is a sure bet that other states will follow. Now is the time to look at your hiring practices and to make sure if you run credit reports on your job applicants, there is a vital, job-related need for that information.