Employment credit checks are putting jobs out of reach for Oklahomans

This post is by OK Policy intern Lydia Lapidus. Lydia is a recent graduate from George Washington University’s Elliott School of International Affairs with a concentration in International Politics.

When applying for a job, you might scan your social media profiles and hide or delete any off-putting posts that an employer could see. But what if they look at your credit report? You can’t hide the credit card payment you missed several years ago. Though credit reports were originally designed to help banks determine interest rates on loans, nearly half of all American companies now use credit checks as an employment vetting tool. Job applicants with good credit reports are viewed as responsible; those with poor credit reports may be discarded as unreliable or likely to steal from their employer.

That’s unfortunate, because using credit reports during the hiring process ends up unfairly screening out low-income people and minorities, and it keeps qualified candidates out of work and talent out of Oklahoma’s workforce. A person’s credit history, or lack thereof, says nothing about their work ethic, trustworthiness, or potential job performance. It can, however, reflect the financial misfortunes of long-term unemployment, lack of health insurance, and medical debt. So far, eleven states have passed laws either restricting or prohibiting the use of credit reports in employment decisions; Oklahoma should join them.

How do credit reports work?

A credit report is a statement of your financial history and activity; a credit score is a grade summarizing your overall credit. The Fair Credit Reporting Act allows employers to run credit reports on job applicants or current employees as long as the applicant or employee gives written consent. Employers can reject applicants if they refuse to submit to a credit check.

Credit reports don’t just show information about debt from credit cards, medical bills, mortgages and loans. They also include your credit limits, history, and payments. Any foreclosures, bankruptcies, debt collection cases, and wage garnishments will appear as well. This information appears on all credit reports and results in lower credit scores. Credit reports don’t include anything about a person’s checking, savings, or brokerage accounts. They don’t mention rent, utility, or cell phone payments, either. Since low-income applicants have less access to credit, they have fewer chances to boost their credit scores, putting them at a disadvantage when compared to applicants with more financial stability.

Credit screening is most damaging for populations already facing barriers to employment.

Decades of discrimination in lending, housing, and employment have created an enormous racial wealth gap, meaning families of color have less savings to handle financial emergencies and worse credit as a result. Predatory lenders understand this, so they target minority and low income communities with little access to traditional credit for high-cost payday and auto title loans. They then get the courts to extract judgments for missed payments. These harmful practices mean people of color are likely to be at a major disadvantage if an employer asks to pull a credit report.

[pullquote]“All of this creates a vicious cycle: if you get sick and don’t have health insurance, you may go bankrupt. That bankruptcy will tank your credit score. When you try to go back to work to pay your medical bills, your employer may discard your application because of your poor credit history.”[/pullquote]

Further, low-income families are more likely to be derailed by unexpected illness and injury. Medical debt, not credit card debt, is the leading cause of personal bankruptcy. Oklahoma has some of the highest rates of chronic illness and the third highest uninsured rate in the nation. Additionally, more than half of all African Americans and Latin Americans have medical debt on their credit cards.

All of this creates a vicious cycle: if you get sick and don’t have health insurance, you may go bankrupt. That bankruptcy will tank your credit score. When you try to go back to work to pay your medical bills, your employer may discard your application because of your poor credit report.

Credit history has very little to do with job performance.

The idea behind employment credit checks is that a person’s financial behavior can predict their professional character. Many employers may believe that a person with bad credit may be more likely to commit fraud or embezzlement. But studies have found no evidence to justify credit checks for any type of position, even those that handle money.

The most common reasons for poor credit are those that are very difficult to predict or control: medical debt, job loss, pay cuts, and other financial emergencies. Even worse, credit reports are often riddled with errors that are hard to correct. Despite the obvious problems with credit reports in general, these situations can mark job seekers with a scarlet letter, keeping them in a cycle of debt and unemployment.

Getting a job – especially a stable, well-paying job – is already tough in Oklahoma. Using credit reports to evaluate candidates can put those jobs out of reach for the low-income Oklahomans who need them the most. Employers, too, are hurt by excluding talented people who have fallen on hard times. Oklahoma lawmakers should ban employment credit checks and give talented individuals a chance to improve their lives and our workforce.