Applicant Credit Checks
The Fair Credit Reporting Act (FRCA) is a federal law that governs how a credit reporting agency handles your credit information. It is designed to protect the integrity and privacy of your credit information. The FRCA permits employers to request credit reports on job applicants. A 2010 study from the Society of Human Resource Management (SHRM) estimated that 60 percent of companies checked some (or all) job applicants’ credit reports.
Federal law permits employers to use credit history as a basis for denying employment and even rejecting any applicant who refuses a credit check. When applying for jobs, it is important to know your legal rights regarding credit checks.
Employers using credit reports to screen job applicants must do the following:
• Obtain your written permission to request a credit report. The FCRA requires the notice to be “clear and conspicuous” and not mixed with other language. Read each application carefully and pay attention to what you are signing.
• Notify you before they take “adverse action” (in this case, failing to hire) based in whole or in part on any information in the credit report.
• Give you a copy of the credit report and a written summary of your rights.
• Provide you with an opportunity to dispute the information contained in the report (typically three to five business days) before making a final decision.
Potential employers see a modified version of your credit report. Information that might violate equal employment regulations — such as birth year and marital status — is omitted, as is your credit score and account numbers.
As of February 2013, eight states (California, Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont, and Washington) have passed legislation to restrict the use of credit checks in employment, and dozens of additional cities and states have introduced bills to do so.
At the same time, however, these laws include numerous exemptions that allow certain employers to continue conducting credit checks — even when there is no evidence that credit history is relevant to job performance. Check your state’s labor department or your city government to find if you are covered by any applicable laws.
The Equal Employment for All Act, introduced to Congress in 2013, would amend the FCRA to prohibit employers from considering credit reports in the hiring process, except for jobs that require a security clearance, are in the public sector, or are related to financial services. As of November 2018, that bill continues to languish in the House Financial Services Committee.
In the meantime, there are things you can do to protect yourself:
• Check your credit report before you begin applying for jobs. You are entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies. Order online from annualcreditreport.com, the only authorized website for free credit reports, or call 1-877-322-8228. You will need to provide your name, address, social security number, and date of birth to verify your identity.
• Flag negative-yet-accurate information by contacting the credit bureau and asking to attach a 100-word explanation to your report of the extenuating circumstances that led to the negative situation.
• Give your permission, when requested, to access your credit report. Unless you live in one of the states mentioned (California, Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont, and Washington) and are in an exempt category, you have a greater shot of being shown the door if you refuse the employer access.
• Don’t panic. Even if your credit report contains some negative information, you’re not necessarily out of the running. Only 10 percent of employers reported on a SHRM survey that a clean credit history was the most important variable in deciding whether to hire someone, and 80 percent of companies still hired candidates with damaging information on their credit reports.
