If anything, it’s a vicious circle: you lose your job in a tough economy and resort to overextending yourself to make ends meet, only to find that your affected credit report keeps you from getting a job.
This scenario is becoming more real to many longterm unemployed Americans, and the growing practice of credit checks in screening for prospective employees seems to be hurting minorities more so.
That’s mostly because their credit is, on average, not as good as that of other low- or middle-income households, according to a new report from Demos, the national research and advocacy group.
A quarter of surveyed respondents who were unemployed said a potential employer has requested a credit check as part of a job application.
The report finds that poor credit is associated with household unemployment and medical debt that reflect on an individual’s unfortunate circumstances, bad luck and the slow economic recovery, not an applicant’s likely job performance or financial responsibility.
Yet, nearly half of businesses report using credit checks in hiring decisions, and it is not limited to high-level managers or those with fiduciary responsibility, Demos found.
Some employers dont require a credit check, but many employers require credit checks for low-wage jobs and positions such as retail, maintenance, drivers and tech support.
“What’s concerning about this practice is that Americans are being shut out of job opportunities for reasons few would consider legitimate,” said Amy Traub, author of the report and Senior Policy Analyst at Demos. “Our research shows poor credit more often tells a story of personal misfortune far more convincingly than one of poor work habits.”
Previous research findings by Demos shows that African American and Latino households report worse credit on average than white households.
Now, employment credit checks may disproportionately screen these minorities out of jobs, leading to discriminatory hiring, Demos said.
Higher rates of unemployment, and disparities in wealth and assets, have left Latinos and African Americans with a greater need to borrow for emergencies and at a greater risk for foreclosure or loan default.
“Consumer credit reports were not originally designed as an employment screening tool, they were developed for lenders to evaluate credit risk,” Traub aid.
A spokesman for one of the three credit agencies has testified that there is no statistical evidence that establishes any “credible link between poor credit and job performance or criminal activity,” added Traub.
The practice continues because it financially benefits the companies that market and sell this information to employers, she said.
There is little concern for the negative impact on those Americans struggling to find work in a tough job market, she said.
Here are key findings of the Demos report, which surveyed low- and middle-income households carrying credit card debt:
- 1 in 4 respondents who were unemployed said a potential employer has requested a credit check as part of a job application.
- Among job applicants with blemished credit histories, 1 in 7 has been advised that they were not hired because of their credit.
- Poor credit is associated with household unemployment, lack of health coverage, and medical debt.
- People of color are disproportionately likely to report worse credit—for example, 59 percent of white households in our sample report credit scores of 700 or above, while just 24 percent of African Americans report scores as high.
- 1 in 8 survey respondents who report poor credit cite errors on their credit report as a reason for their poor credit history.