A couple of years ago, I missed a credit card payment for the first time ever. I was struggling to keep up with a sudden influx of medical bills after spending a few nights in the hospital for a routine surgery and, somehow, the bill for my Gap Visa card got lost in the pile.
Luckily, I found the bill just in time before my 30-day delinquency got bumped to 60 days. But my one-time slip felt like especially bad timing.
I had just been laid off from my job the same month that the bill arrived in the mail, and I was in the midst of applying for a new one when I realized my mistake.
One potential employer asked if I’d mind if they checked my credit history. At the time, I knew my 30-day late payment would probably just be small potatoes to them, but the request made me wonder. Would they judge me for being disorganized enough to miss a payment? Did my financial lapse mean that I was somehow less fit to do the job? And would I get a chance to explain?
In the end, it didn’t matter. I was offered the job anyway. But many people with much worse credit histories than mine say that the black marks on their credit reports have cost them at least one job.
According to a February 2013 report by the consumer advocacy group Demos, 1 in 10 survey respondents (out of a sample size of just under 1,000) said they were told by a potential employer that they didn’t get the job because of something that was found on their credit reports. Among those with bad credit, 1 in 7 said they received adverse action notices based on information in their reports.
That’s an awfully harsh outcome considering that many people with bad credit have a good excuse for how they wound up with it. For example, some lost their jobs during an extraordinarily weak job market. Others were blindsided by medical bills, which are at record highs, thanks to surging medical costs.
Still others may have done nothing at all, except have the misfortune of finding mistakes on their credit reports that were big enough to tank their chances of getting a job. For example, one recent college graduate I spoke to last fall had to choose an entirely new career path because his chosen industry routinely checked applicants’ credit histories and his reports were riddled with errors that he struggled for years to remove.
It’s unclear just how many employers in the United States check job applicants’ credit histories. The most widely cited statistic supplied by the Society for Human Resources Management bases its count on a survey conducted amongst its own members and so the sample is somewhat skewed. However, according to the group’s most recent survey, 47 percent of respondents said they checked job applicants’ credit histories — down from 60 percent in 2010.
Respondents to the survey said that political pressure, which has increased in recent years as more states consider limiting employer credit checks, has caused them to pull back on using credit checks for every applicant.
“Employers are becoming more aware of the scrutiny that the states and federal government are putting on these tools, so they’re using them in more discreet ways,” said the Society for Human Resource Management’s Mark Schmit in a statement accompanying the report.
That wary attitude may spread as more states — and even some municipalities — are eyeing the practice, which has grown increasingly controversial at a time when nearly everyone knows at least someone who’s been thrown into unemployment through no fault of their own.
Last week, Colorado became the ninth state to limit employers’ use of credit reports when checking job applicants’ backgrounds. Currently, Hawaii, California, Connecticut, Illinois, Maryland, Oregon, Vermont, Washington and now Colorado have laws on the books that curtail the practice, according to the National Conference of State Legislators (NCSL).
The NCSL also lists 13 states, in addition to the District of Columbia, that currently have similar bills in legislative limbo: Georgia, Indiana, Iowa, Kansas, Massachusetts, Missouri, Nebraska, New Jersey, New York, Oklahoma, Pennsylvania, Rhode Island and South Carolina.
Democratic Congressman Steve Cohen of Tennessee has also been trying since at least 2009 to get Congress to pass a federal law that would limit employer credit checks. He introduced a fresh bill in February that would bar employers from considering credit reports and bankruptcy filings when evaluating job applicants.
However, considering Washington’s gridlocked political climate, Cohen’s bill is unlikely to get far any time soon.
Until then, opponents of the practice still have an uphill battle to climb, with 41 states in the U.S. permitting employer credit checks. To see where your state stands, check out the NCSL’s frequently updated guide on the current legislative battles that are looming in state houses.