Using Credit Reports to Evaluate Applicants – Hidden Discrimination?

Posted by marykeating on October 9, 2009 under Discrimination in employment, Workplace privacy | Be the First to Comment

Employees these days are flooded with applications.  So they have to weed out people somehow.  Once you get past the poorly done cover letter, the resume with typos, the lack of relevant experience, there may still be a pile of possibly good candidates.  What’s an employer to do?

Well, some are demanding from applicants the right to run credit reports, and to use the results to make decisions.  An employer who obtains a credit report without a valid reason or authorization is asking for trouble under the Fair Credit Reporting Act.  But what about the ones who have permission?

Bad credit can be a very loose proxy for poor judgment or irresponsibility, of course, but the credit report itself seldom gives a realistic portrayal of the circumstances that explain the credit card load, the repossessed automobile, or the lawsuits by the hospital.  Divorces, job loss, and medical catastrophes cause more bankruptcies than anything else, so it stands to reason that they are behind other bad ratings in a credit report.  Employers relying too heavily on credit reports will deprive themselves of good workers.  They may also, inadvertently or not, exclude disproportionate numbers of women, minorities, and young workers.

Some employers have a reasonable basis for requiring a credit report.  Companies with contracts requiring national security clearances may have to be careful of the employee with too much debt, implying a weakness for espionage.  (Or is that all left behind with the cold war era?)  Employees hired to handle cash or bank accounts may warrant additional scrutiny if their credit reports indicate late payments in their personal lives, or huge debt loads.  But as a tool for analyzing which applicant for a job or a promotion would do the job well, the personal credit report is a dull ax, and should be used only with some refining, such as giving the employee the right to explain thoroughly.  In fact, under the FCRA, an employee has the right to know that the report’s findings were used against him or her.   It is hard to discover if that requirement was ignored, though.