Credit Reports and Employment: Findings from the 2012 National Survey on Credit Card Debt of Low- and Middle-Income Households

Article excerpt

I. INTRODUCTION

Today, it is common for employers to look at job applicants' credit history before making hiring decisions. Even a cursory look at a popular job-listing website reveals that employers require credit checks for jobs as diverse as doing maintenance work, offering telephone technical support, assisting in an office, working as a delivery driver, selling insurance, laboring as a home-care aide, supervising a stockroom, and scooping frozen yogurt. (1) The Society for Human Resources Management (SHRM) surveyed its members in 2010 and concluded that 60% of them check an employee's credit history when hiring for some or all positions. (2) Yet despite the prevalence of employment credit checks, researchers, policymakers, and employers understand little about what credit checks reveal to employers, their consequences for job applicants, or their overall impact on our society. This Article, drawing on new data from Demos's 2012 National Survey on Credit Card Debt in Low- and Middle-Income Households, addresses these questions and finds substantial evidence that employment credit checks constitute an illegitimate barrier to employment. (3)

Demos's survey, conducted by national research firm Knowledge Networks between February 7 and March 2, 2012, queried a nationally representative sample of 997 low- and middle-income American households who carry credit card debt. (4) We find that among unemployed survey respondents, employment credit checks are common and people have been denied jobs because of them. We also find that poor credit is associated with factors such as unemployment, lack of health coverage, and unpaid medical bills, suggesting that employment credit reports may reveal more about the economic stresses facing a household than an individual's suitability as an employee. Our findings are consistent with previous research concluding that African Americans are less likely to have good credit than the population as a whole. (5) Finally, survey respondents with poor credit are concerned that their reports contain errors. Given the dearth of research finding that credit history correlates with meaningful employment factors, we conclude that credit history illegitimately obstructs access to employment, often for the very job applicants who need work the most.

This Article will first provide an overview of employment credit checks and their legal basis in Part II, (6) then offer evidence that employment credit checks are prevalent and are widely used to deny employment in Part III. (7) Part IV takes a step back from our survey findings to include a critical look at employers' rationale for conducting employment credit checks, and to examine the empirical research concerning their relevance and validity. (8) Part V draws on our survey data to provide evidence that poor credit reflects factors such as race, unemployment, and medical debt. (9) Part VI explores the prevalence of errors in credit reports and the difficulty in addressing them. (10) Part VII integrates the findings of the previous sections and concludes that credit checks represent an illegitimate barrier to employment. (11)

II. AN OVERVIEW OF EMPLOYMENT CREDIT CHECKS AND THEIR LEGAL BASIS

Credit reports were initially developed as a tool for lenders to evaluate whether a would-be borrower would be a good credit risk: By looking at someone's history of paying his or her debts, lenders decide whether to make a loan and on what terms. Accordingly, credit reports include not only an individual's name, address, previous addresses, and Social Security number, but also information on: mortgage debt; student loans; car payments; credit card accounts, including balances, credit limits, and monthly payments; bankruptcy records; bills in collection; and tax liens. Employers may purchase credit reports through any number of companies that offer employment background checks (which also may include checks of criminal records or other public data) but the credit portion of the report is typically supplied by one of three large global corporations: Equifax, Experian, and Transunion, which are known as consumer reporting agencies (CRAs). …