- Personal Finance
Credit Score Discrimination in the Workplace - How It Hurts Your Employment Chances
Whats Going On
With the current economic conditions many Americans are facing economic hardships they never had planned for. I live in Central Wisconsin, unemployment is over 10% . The main industry in this area is paper manufacturing. In the past 12 months we have seen plant closings and mass layoffs in the paper industry. What I have begun to see is effect it has on the entire economy of my city and the surrounding cities. You see there is more to paper manufacturing than just a paper plant, there are many interdependent businesses that because of those closings and layoffs, are seeing reduction in work. This leads to more layoffs and more Americans facing economic hardships. With the unemployment rate rising, people who once made $25 per are settling for $10 - $12 per hour. Stemming from all this, was and is an increase in home foreclosures, people had begun to have trouble keeping up with their financial commitments.
From experience I know people will do whatever they can to make sure the mortgage is paid and that there is food on the table. This means credit cards and other debt is the first thing they sacrifice. As Americans skip their credit card payments we see the erosion of their credit ratings. This leads me to the topic of my story, your credit report or credit score and your ability to find employment. Like the t.v. commercial advocating getting your credit report, your credit score can prevent you from getting a job. I wrote a letter to a Senator in my state regarding this matter and here is an excerpt of what he wrote back; “more recently credit scores are being used by non-credit-related industries to evaluate risk and predict behavior. Now credit scores are being used as a factor in the evaluation of a consumer's financial stability, responsibility, and potential risk ”.
A Case Study in Credit History
Now, my question is how does it predict behavior? The credit score does not predict behavior, your credit history may have some behavior predictability, but not the score. For example, let’s look at two scores and credit history.
Person 1 has a 760 score with a no late payments for 48 or more months, depending on who was reporting it and how far they went back. There was nothing negative or derogatory on his report.
Person 2, has a credit score of 520 with multiple delinquencies on credit card debt and money judgments against him. There is also pending law suits on him from creditors.
By the definition above, my guess is that the future employer would want to pick person 1, because that person would appear more responsible, thus predicting a responsible work ethic as well. Person 2, on the other hand would be less desirable, because of the “lack of responsibilities” to his commitments. Person 2 may also have a less desirable work ethic, therefore the employer would want to talk to and hire person 1.
Here is the kicker, both persons in the example are the same person. The difference is person 1 was from 2006 and prior, where person 2 was from 2006 until now. I can tell you the work ethics and habits of this person has not changed. He is still an excellent employee, getting praise from his employer and outstanding yearly reviews. But what happened to cause such a change in credit scores.
In 2006, this person was a bank manager and his wife an office manager, their income was well over $120,000 per year and they were close to becoming debt free. Then his wife served him with divorce papers and thus began his decline into a nervous breakdown. He had to move out of the house, but the wife would not give him any marital property until they went to court. In order to re-establish himself he had to use his credit cards. Because of the breakdown and the stress of managing a bank and going through a divorce, he was demoted from his position. His salary was now cut from $60,000 per year to $36,000 per year. Here is another problem, the demotion and pay cut came after he moved out, so when he re-established himself he did it at level of someone making $60,000 per year. Now his income was cut nearly in half.
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Knowing he was not making enough to maintain his lifestyle, and being in a lease and having credit card debt, he decided he needed to do something to earn more. He had experience and was licensed to sell investments, so he took the plunge and entered the world of investments, working now on commissions with a small base. Prior to 2008 and the market decline the income was getting better. Now the economy dried up, he maintained all his commitments until September of 2008, when the bills became too much. In December 2008, he found out his commission structure was being cut by 40% which meant to make the same amount of money he made in 2008, he would have to double his sales, or his income would be less than the $36,000 he left behind.
This person has been looking for a new job for the past 7 months, something that was salaried or partially salaried where he had the opportunity to make a decent wage. The problem is that when the companies he applies for pulls his credit they see a 520 credit score, and he is taken out of the applicant pool. They did not look at his history, nor ask him what happened to have such a drastic change within 12 months. He was just eliminated from the opportunity. Even jobs he was more than qualified for was not being opened up to him. But, wait he could get the $10 per hour job and make less than he was currently, which was not enough to cover his commitments. His choices at this point is bankruptcy and possibly foreclosure, which brings us back to the beginning of my story.
The credit score has no bearing on how a person is going to work. The credit history may have some ability to predict work ethics, but only if taken in context and looking at the entire history and asking questions. The bottom line is this person did plan to get divorced, did not wake up and say “I am going to have a nervous breakdown today” or ask his bosses to cut his pay”. Things happened that caused this person to do things in order to keep his family fed and a roof over their heads. I did forget to mention, this person also had a child to take care of. He did the best he could and when he tried to make things better, he saw doors closing on him. What’s funny is that perhaps if he got a job that paid better, based on his qualifications he may have been able to work himself out of this debt and clean up his credit score.
Not all states allow employers to look at your credit score. Your credit score is your personal information. Anyone in this situation will understand that this is preventing them from making things better. We know that the state can disallow employers from using credit reports in the hiring elimination process, this is where we need to get it changed. As I said earlier, a Senator defended the process, but then again who supports them financially in Washington. After all are we not giving billions of dollars to creditors, such as Citi Bank. They received bail out money from the taxpayers, they refuse to help. Seems to me that many financials drove their companies into the ground and requested taxpayer help. Well the taxpayer needs to be helped now. We are not asking for a handout, but lets make it fair. The credit report is private and personal information, not related to how a person will work. I urge everyone in this situation or who agrees to write your state legislature and demand that no employer may request and pull a credit report for the hiring and employment process.
One voice will not convince the state, but many voices will. Credit discrimination is no different from discriminating against women or your sexual orientation. It is time for it to stop. Contact your state government and demand the end to this type of discrimination, and help other people get the job they are qualified for.