Should Credit Checks Matter When Hiring?

iStock_000002674288_ExtraSmallIt’s been a common practice for some time now for hiring employers to run a credit check on any potential employees, but that might not be the case for much longer. Federal lawmakers have recently proposed a bill that would ban the process all together, restricting employers from gaining any access to a person’s credit history.

The bill, called the Equal Employment for All Act, is based on a previous bill brought to the House of Representatives by Tennessee Democrat Steve Cohen. It would strictly prohibit potential employers from obtaining or considering an applicant’s credit history when hiring.

The argument for this proposed change is that a person’s credit report is affected by things that are out of the individual’s control, such as medical bills, unemployment, or other unforeseen circumstances. These credit scores do not provide an accurate reflection of a person’s work ethic or ability to do the job.

The bill is being spearheaded by Massachusetts Senator Elizabeth Warren, who says that “it makes no sense to make it harder for people to get jobs because of a system of credit reporting that has no correlation with job performance and that can be riddled with inaccuracies.”

Warren is fighting especially hard for families that have yet to recover from the 2008 recession who she feels will be unable to get back on their feet if credit reports continue to carry weight in the hiring process.

The process of checking applicants’ credit reports became popular about 20 years ago as credit agencies discovered a new consumer group. The argument was that a credit check could help employers to get a better understanding of a person’s integrity and character. More recent studies have found that this is not the case at all.

The bill does have opposition, chief among them the Society for Human Resource Management. The SHRM vice president of government affairs, Mike Aitken, has voiced dissent on behalf of the group, saying that “SHRM opposes any legislation that would be an absolute bar for employers to have access to credit reports in the employment process, as the consequences of making a negligent hire are significant to employers, their clients and employees as well.”

The SHRM argues that the primary reasons for requiring a credit check in the hiring process is to prevent legal liability from bad hiring, and to prevent theft or embezzlement. SHRM researchers have also stated that the practice of obtaining credit checks has significantly decreased over the years on its own due to the cost and increased scrutiny.

Until this bill or one like it is passed, employers still may run a credit check before making a decision to hire. Make sure that any debt errors that may come up on your credit report are taken care of if you plan on going on the hunt for a new job. After filing bankruptcy, most, if not all, of your debts should be discharged. Double check before you start turning in applications that they were in fact discharged. There are many different online credit score sites that you can use to check for errors. Speak to these credit score companies about removing any errors to ensure that potential employers will not see them and make a decision based on a mistake.

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