How to protect yourself during employer credit checks

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Employer-based credit checks can be illegal in some states and some circumstances. Image: Flickr / waponigirl / CC-BY-SA

Getting a job in this economic downturn can be very difficult, and the practice of employers checking potential employees’ credit reports have made it even more difficult for some. In California, a newly enacted law limits when and why employers can legally pull a credit report to make a hiring decision.

The practice of credit-for-employment

The practice of checking credit reports as a condition of employement began in the 1990s at the suggestion of credit-reporting companies. The big three credit reporting agencies marketed credit reports as a way to judge the “trustworthiness” of a potential employee and their “financial responsibility and organizational skills.”

The problem with credit checks

Employers are allowed to check credit reports, but not credit scores, as a condition of employment in most states. However, credit reports may not accurately reflect the quality of a potential employee. Especially with the economic downturn and long-term unemployment, many qualified potential employees are being turned down because of black marks on their credit reports. The situation quickly becomes self-repeating: People can’t pay bills because they cannot get jobs; bad credit means they get turned down for job, which means that they are less able to pay their bills.

California and Connecticut take action

In early October 2011, both California and Connecticut enacted new legislation that disallows employer credit checks for hiring decisions in certain employment classes. In California, consumer credit reports can be used for hiring decisions for only the following positions:

(1) A managerial position; (2) A position in the state Department of Justice; (3) A sworn peace officer or other law enforcement; (4) A position for which the information contained in the report is required by law to be disclosed or obtained; (5) A position that involves regular access to confidential information ( credit card account information, Social security number, or Date of birth); (6) A position which the person can enter into financial transactions on behalf of the company; (7) A position that involves access to confidential or proprietary information; or (8) A position that involves regular access to employer, customer, or client cash totaling $10,000 or greater during the workday.

In Connecticut, consumer credit reports can be used if:

(1) such employer is a financial institution, (2) such report is required by law, (3) the employer reasonably believes that the employee has engaged in specific activity that constitutes a violation of the law related to the employee’s employment, or (4) such report is substantially related to the employee’s current or potential job or the employer has a bona fide purpose for requesting or using information in the credit report that is substantially job-related and is disclosed in writing to the employee or applicant.

Hawaii, Maryland, Illinois, Oregon and Washington all also have laws that limit employer credit checks to some extent.

How to protect yourself

If you are applying for a job in a state that allows consumer credit checks as a condition of employment, then it is best to cover your bases. An employer has to get your signature in order to legally check your credit report, so be sure to read anything you sign when applying for a position. Second, if you have negative items on your credit report and a potential employer requests to run your report, inform them of what they might find before they see the report. Being open and honest about your credit report is as important about being open and honest about former employers; it makes you look better to potential employers and increases your chances of getting a job.

Sources

Mint.com
Open Government
EBI Inc

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