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How Employment Credit Checks Perpetuate Poverty and Discrimination

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“Must have good credit.”

The phrase appears in help wanted ads for well-paid jobs as accountants and insurance agents, but also for low-wage positions as dog walkers, retail sales associates, restaurant servers, and maintenance workers. If a job applicant۪s debts are high, they۪ve suffered a foreclosure or a bankruptcy, or they۪ve simply struggled to pay bills on time, a prospective employer can legally hold these flaws in personal credit history against them. The process may turn down well-qualified job-seekersa devastating prospect for a household already finding it difficult to make ends meet. The truth is, the very practice of employment credit checks reinforces inequality and can perpetuate poverty and racial discrimination.

Employment credit checks are common for a wide range of positions. Nearly half of employers surveyed by the Society for Human Resources Management in 2012 say they check credit when doing at least some of their hiring. My own research, a study of low- and middle-income Americans with credit card debt, finds that within the survey population, one in seven job applicants with blemished credit reports say that they have been turned down for a job because of their credit.

Despite their pervasiveness, credit reports a product developed to help lenders make loan decisions have never been proven reliable for employment. Credit checks are marketed to employers as a means to gauge an applicant۪s character, sense of responsibility, or likelihood to commit theft or fraud. Yet there is little peer-reviewed evidence to back up these claims. A spokesperson for TransUnion, one of the major credit reporting companies, even admitted: “we don۪t have any research to show any statistical correlation between what۪s in somebody۪s credit report and their job performance or their likelihood to commit fraud.”

My research on low- and middle-income households carrying credit card debt finds that poor credit is associated with factors that may reflect the weak economy or a debtor۪s personal misfortune but have little to do with how well a job applicant would perform at work. I found that households with flawed credit history are more likely to have experienced household unemployment, lack of health coverage in their families, and medical debt. In other words, many people run up debts because they have been out of work or have high medical bills, not because they are necessarily irresponsible people who cannot be trusted on the job. High error rates in credit reports means that a job applicant may not even have incurred the debts found in their credit history.

Employment credit checks can also propagate racial discrimination. Studies from the Federal Reserve Board, the Federal Trade Commission, and others have consistently that found that African American and Latino households have worse credit, on average, than white households. Poor credit in communities of color may reflect the impact of predatory lending that continues to target these communities, as well as other forms of racial discrimination in lending, housing, and employment. This legacy of discrimination can be magnified and carried forward when flawed credit becomes a reason to deny someone a job. For example, Bank of America was found to have discriminated against African Americans when it used credit checks to screen applicants for positions as bank tellers. While such cases are notoriously difficult to prove, the Department of Labor was able to gather evidence showing that Bank of America۪s credit checks excluded a disproportionate number of African American job applicants. Numerous civil rights organizations, including the NAACP, the National Council of La Raza, and the Leadership Conference on Civil and Human Rights, have publicly opposed the use of employment credit checks.
The core problem is this: employment credit checks translate one kind of disadvantage whether it۪s predatory lending, extended unemployment, a legacy of discrimination, or a health catastrophe that led to heavy medical debts into a continued source of disadvantage in the job market, making it substantially more difficult for those whose credit has suffered to get back on their feet. The result is a vicious cycle: it۪s hard to pay your bills if you can۪t get a job, but unpaid bills may also prevent you from getting a job.

Now these concerns have catalyzed a growing number of states and cities to take action to end the vicious cycle. So far ten states have passed laws to curb the use of employment credit checks. In Congress, the Equal Employment for All Act, introduced by Representative Steve Cohen (D-TN), would prohibit the use of credit history for employment purposes. While this legislation is pending, employers can act on their own to discontinue the use of credit history in hiring, giving a fair chance to job applicants whose credit may be scarred by disadvantages but who could become among their most valuable employees.

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Amy Traub is a senior policy analyst at Dos.

The views expressed in this commentary are those of the author or authors alone, and not those of Spotlight. Spotlight is a non-partisan initiative, and Spotlight۪s commentary section includes diverse perspectives on poverty. If you have a question about a commentary, please don۪t hesitate to contact us at

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