Bad Credit Reports Affect Job Applicants

More and more employers are using credit reports to screen for new hires. This can mean an even longer jobless stretch for those who have negative marks on their credit reports. Tell Me More financial contributor Alvin Hall and life coach Valorie Burton give advice on what to do in case you are looking for work with less-than-stellar credit.

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MICHEL MARTIN, host:

I'm Michel Martin, and this is TELL ME MORE from NPR News.

Coming up, conversations about the intersection of faith and politics. Joshua DuBois, chief of the White House Office for Faith-Based and Neighborhood Partnerships, he'll tell us about his latest project: the president's push for responsible fatherhood. And we will hear from Maryland's first elected Muslim lawmaker and why he decided to publicly support same sex marriage even though he believes it is condemned by his religion. That's a little later.

But first, a new hurdle in finding a job. Imagine this, you're on a job search that seems never ending, finally a light at the end of the tunnel. You get a call back, an interview, it seems promising only to have it all slip away because your prospective new boss doesn't like the look of your credit report.

More and more employers are using credit reports as a screening tool for applicants. Joining us to talk about this, and what you can do about it if your credit is not stellar is our money coach Alvin Hall. Also with us is another of our contributors, life and career coach, Valorie Burton. Welcome back to you both, Alvin, Valorie.

ALVIN HALL: Glad to be here.

Ms. VALORIE BURTON (Lifestyle Coach): It's good to be with you, Michel.

MARTIN: Alvin, we did some checking on this and we found a 2006 survey conducted by the Society of Human Resource Management that reported that 42 percent of surveyed employers run credit checks on job applicants. And this is a big increase from the 25 percent who did so in 1998.

Now you can see why this would be relevant. If you're looking at somebody who handles large sums of money, for example.

HALL: Exactly.

MARTIN: But why would potential employers or people who do other kinds of jobs care about their credit history.

HALL: It became part of a broader background check creep. As more and more people were doing background checks, they started adding in more things that they thought would give them an idea of who was trustworthy. In fact, there's a site, and the site has the following statement only: checking credit reports is the only thorough way that an employer can ascertain an employee's trustworthiness. This has been a whole new take on what it means to be trustworthy and it's actually very disturbing.

MARTIN: And why so?

HALL: It denies the fact that often people have credit problems for things other than trustworthiness. For example, 62 percent of all bankruptcies in America today are caused by medical problems. If you lose your job for a long period of time, you may fall behind on your payments. This seems to be removed from the picture. People are using this solely to judge whether a person is reliable, trustworthy and dependable.

MARTIN: Valorie, what's your take on this as a practice?

Ms. BURTON: I think that, you know, people are human beings when they're looking at an application. So, certainly, if somebody has been out of a job for eight months, you can use your common sense and recognize that their credit may have been affected by that and there's a reason for that.

By the same token, if someone simply isn't paying their bills even though they have had a job and they have had the income that does say something about their level of responsibility. So, I don't think you can ignore that a credit report can be a judge of character. But, of course, you have to take into account a person might have had a health problem and disability, things that have happened that have caused them to be not be able to pay their bills.

MARTIN: Do you think that this has become more of a practice as the job market has become tighter? It's just another screening tool, Valorie.

Ms. BURTON: I think this is a screening tool for certain. But I know that even when I first got out of college one of the jobs that I was offered - before they offered it to me they did a credit check and I was 22 years old. So, it wasn't necessarily that it was a high level job or I was going to be dealing with a lot of money, but they were using it as another measure. And it can be an objective measure, you know? You've either paid your bills on time or you haven't paid your bills on time. You had a bankruptcy or you didn't have a bankruptcy.

MARTIN: Did they inform you in advance that this would be part of the interview process?

Ms. BURTON: They told me at the point at which they had interviewed me. So, I believe it was at the end of may be the second interview that they said that they wanted to do a credit check. And it was - they said in the same sentence with and we're going to check your references.

MARTIN: Okay. Alvin, what's your take on this? At what point do you think it's appropriate if indeed this is a relevant screening tool? In fact, I want to mention that The New York Times did some reporting on this as well. And they interviewed a human resource manager who said that, look, if I see too many negative things coming up on a credit check, it's one of the things that raises a flag with me. Although she said that a bad credit alone would not be a reason to deny someone a job that it might reveal poor judgment.

But The Times also interviewed a number of people who had been denied jobs based on their credit histories, which was particularly troubling because of a number of these people were looking to this employment in order to fix their credit.

HALL: Indeed. I think that a lot of people use the credit checks as a way of justifying other decisions. I think Valorie is right. In an ideal world, people would use this in a more humane way to look at somebody and say, yes, they've had a difficult time. But if you have reservations about a particular person, this gives you another tool to justify that reservation, whether that's valid or invalid.

In places like Britain, people are prohibited from doing credit checks. You are judged on your ability to do the job and your experience. And adding in this idea that the way you manage money is always an indication of something untoward or something unfortunate is not a good trend in America. Even I, as a consultant in companies, have to go through credit checks. And I've noticed that on almost all these agreements now, they have the ability not only to check my credit before I sign the consultancy agreement, but to periodically check it over the time that I'm a consultant.

MARTIN: What do you think is the purpose of it? And do you - the impression I'm getting from you Alvin is that you think it's a proxy in some ways for perhaps a discriminatory intent. Do you think that?

HALL: Yes, I do. I think that a lot of companies - and I have had personal experience in this - use this as a way of justifying why they may not want to use you. Or to say we found this little thing in your report, and it's disturbed us, so we think that we don't want to use you for this job.

I think in their early days when Valorie started out from school, when I started out from school, it was completely harmless. I think in a post-9/11 world, it became a much greater part of the employment process. And then people started to very subtly see, well, if we don't want to hire this person, here's how we can use this because the courts have said this is not discriminatory. So, we can use it and we're on safe ground.

MARTIN: But on the other hand, Alvin, and just very briefly I'm going to jump in just to say if you're just joining us, you're listening to TELL ME MORE from NPR News. I'm speaking with our personal finance expert Alvin Hall and life coach Valorie Burton. We're talking about the increasing use of credit report in job searches to evaluate the credit of individuals who are in the middle of a job search.

But, Alvin, if everybody who applies for a position at a company or an entity is subjected to this, how can it be discriminatory?

HALL: Because it's the decision making process on the other side. If we are all subject to the blanket agreement, if somebody were able to go in and analyze who got the jobs based on their credit histories, then we'd be able to see if indeed there was a trend. I suspect there would be.

You find that racial minorities have a worst credit rating than whites. So, therefore, automatically, we're in a disproportionate area of the negative. Therefore, I can also see that a person would look at that and you find that more blacks or more Hispanics were discriminated against in a job search. But we'll never know that because the information is not available.

MARTIN: What we do know that there's an asset difference.

HALL: Yes.

MARTIN: For example, that people of other backgrounds may have a deeper asset pool from relatives to draw upon that might help them to get out of difficulties.

HALL: Yes.

MARTIN: And we've talked on this program about the increasing effort to try to market credit cards, for example, to college students at an age when many people think they're perhaps not as able to handle this as they should be. So, I think it's appropriate to turn to what should one do about it, Valorie. How should a job applicant handle this if you know that your credit is less than stellar but you really need that job?

Ms. BURTON: Well, you know what I think, first and foremost - and this is the great question. It is what it is. So if you're applying for a job and they are doing a credit check, there's nothing you can do about that except to be prepared to answer questions. So you need to be very honest with yourself about where your credit stands.

If there are good reasons, legitimate reasons, things that have happened, a lost job, a spouse that has gotten ill, you've gotten ill at some point and you lost your income or your income was decreased, being able to explain those things is very important. And I think, unfortunately, also being prepared that if there is no good reason and there are bills that just haven't been paid that may affect whether or not you get a job. It doesn't always affect it, but very well may affect it.

MARTIN: At what point should one consider disclosing this? Because one of the things that we found in the reporting is that people are finding out that their credit has been an issue before a job has been offered even though they were led to believe that they were strong candidates. So should you consider disclosing this proactively? Should you ask whether a credit check is part of the interview process? Does that raise a red flag in of itself?

Ms. BURTON: I think that I would wait until it is asked. I think it is very important to put your best foot forward. You want to be able for them to see all of the positive attributes that you bring to this potential position before you're bringing up the negative one.

So, I think that it's really important to go through that process where they get to know you and they have other things to judge you on besides your credit. And then when that comes up, if it is an issue, having a response, and I think you need to know what that response is before you're even applying for the job because you don't know at what point it's going to be.

MARTIN: But what do you consider a good reason? For example, you know, we have done some stories here about people who are in that kind of that squeeze generation, both taking care of young children and elderly parents. And we've had a number of people just talk about how completely taxing it can be, for example, to take care of someone, an elderly parent. Do you consider that a good reason? What's a good reason?

Ms. BURTON: If I were an employer, I would consider it a good reason. And I think what we have to recognize is that there are individual people making the decision. And so, you may be uncomfortable being in a position of having to even explain that, but it is the reality. So, being able to have your explanation ready and being able to be honest about what that explanation is I think is going to be very important.

MARTIN: Alvin, final thoughts from you. How would you address this if you're an employee and you thought you had some blights in your credit record and you knew you're entering the job market. How would you handle it?

HALL: As soon as they say to you they're going to do a background check which includes your credit report, I would then say yes I've reviewed my credit report and you will find the following things there. I would have practiced way in advance what I'm going to say. I would then balance the negative with the positive by saying, yes, this will show that I had this problem but I've dug myself out of this problem. Now I'm on a much more even keel.

And the situation that you talked about earlier where the person was torn with so many different things, somebody could read that as saying, well, they won't be able to give the job their entire attention. You need to come out of the negative with the positive and reassure the person that you can do the job.

MARTIN: And finally, Alvin, how do you get that credit report?

HALL: It's free to everybody. Free annually to everyone who has a credit card or any type of form of credit. Also, if they've done a background check and it's come up negative, the employer must give you access to that credit report and so do all of the credit reporting agencies.

MARTIN: Alvin Hall is TELL ME MORE's regular contributor on matters of personal finance and the economy. He joined us from our bureau in New York. Valorie Burton is an author and a life coach. Her latest book is "How Did I Get So Busy." And she joined us on the phone from her home office in Annapolis, Maryland. I thank you both so much for joining us.

HALL: Thank you.

Ms. BURTON: Thank you, Michel.

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