Living with credit, Research, regulation, industry reports

Bankruptcy has ‘zero effect’ on job prospects, study finds

Kelly Dilworth

If you’re worried bad credit will dampen your job prospects, you can rest a little easier.

According to an October 2016 working paper published by the National Bureau of Economic Research, a flag on your credit report showing you filed for bankruptcy within the past seven to 10 years is unlikely to affect your chances of getting hired.

”We estimate a precise zero effect … on employment and earning outcomes” of the removal of the flag, the study authors wrote.

The authors analyzed the credit reports and tax records of consumers who filed for Chapter 7 and Chapter 13 bankruptcy and compared what happened once the negative marks fell off the borrowers’ reports.

Predictably, the researchers found that while having a bankruptcy notation on a credit report profoundly impacted a consumer’s access to credit,  it didn’t affect his or her likelihood of getting a job.

Previous employment surveys also have found that most employers put little to no stock in people’s credit histories when evaluating applicants for a new job.

For example, a 2012 survey of by the Society for Human Resource Management found that fewer than half of all employers – 47 percent – check  job applicants’ credit histories. Among those employers who do review credit histories, most say that they don’t pull a candidate’s credit reports until after an initial job offer has been made.

Also, many employers check credit reports only when an applicant is seeking certain positions, such as those in financial management or with high-level access to employee records.

Eighty percent of employers who check credit histories claim that they still hired candidates with negative marks on their reports.

Despite limited evidence linking unemployment or restricted employment to bad credit, consumer advocates remain highly critical of employer credit checks and contend that the number of consumers who have been denied a job because of bad credit may be under-reported.

By law, employers are required to inform applicants and send a copy of the credit report if they decided to pass on an applicant because of his or her credit.

According to a 2013 Demos survey of low and middle-income applicants with credit card debt, 1 in 7 job applicants with bad credit said they were told they wouldn’t get the job because of their credit histories.

Eleven states have passed legislation banning employment credit checks – California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington. Several major cities such as New York City also have curbed employers’ ability to check an applicant’s credit.

Your bottom-line
The debate over whether or not employment credit checks should be banned is ongoing. However, the latest research should help ease your mind if you’re job hunting with bad credit.

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