Despite A Lack Of Evidence, A Credit Report Can Still Be Used To Deny You A Job

About a third of employers are estimated to run credit checks on potential hires. Here's what you need to know.
There is no strong predictive evidence to link credit reports and job performance, but that doesn't stop employers from using them anyway.
There is no strong predictive evidence to link credit reports and job performance, but that doesn't stop employers from using them anyway.

When Matt Boswell heard back from Fidelity Investments in August about a remote client service associate role he’d applied for, he was excited. Boswell, who lives in Fort Lauderdale, Florida, had been a stock broker and client representative in financial services for over a decade, and Fidelity was the company he’d always put on a pedestal.

After some promising interviews, a hiring manager gave Boswell a verbal job offer. In late September, he received emailed notice about the next step in the application process: A background check agency would obtain a consumer report containing his credit history.

“Should you wish to explain any items that appear on the the report, please contact the undersigned immediately,” Fidelity wrote in an email to Boswell, which HuffPost has reviewed. The email also noted that a final offer would be contingent on Boswell passing the background check.

Boswell said he had accumulated debt in the range of $10,000 to $12,000, so he replied to say he was ready to settle any accounts in question.

The credit problems that showed up on his report stemmed from an electric scooter accident in 2019 that required three facial surgeries, Boswell said. Before then, he had a credit score of 720 that he had been monitoring in the hope of buying a home. But after the accident, he put medical bills on his credit cards and withdrew money from his 401(k) as he went on medical leave from his bank job to recover.

From there, it was a cascading downhill event,” he said. “I had some savings, but not enough to pay down my credit and still survive.”

By the time he received a verbal offer from Fidelity, Boswell had been out of work since June 2020 and was making a living from day trading and with financial help from his family.

“This is a very degrading process. It’s dehumanizing. It’s not something that I like subjecting myself to.”

- Matt Boswell

Boswell thought the explanation he gave to the background screening agent was sufficient. He had been drug tested and fingerprinted for the role, so he assumed his offer was secure and let friends know. But on a phone call in October, a hiring manager told him Fidelity would be unable to move forward with the job offer because his credit report contained charged-off credit accounts, meaning the debt had been declared unrecoverable.

Boswell said he asked if there was a way to remedy the situation, but “they said that they don’t allow that for my circumstance.”

“It really is distressing, and it leaves you feeling hopeless,” Boswell said of the outcome. “This is a very degrading process. It’s dehumanizing. It’s not something that I like subjecting myself to.”

A Fidelity spokesperson told HuffPost that a good credit check is “especially important when working in the financial services industry. All offers for new hire employees are not final without a satisfactory background and credit check. There is language in all job offers to new hires that a background investigation will be conducted once they accept the job.”

Fidelity would not provide details about what a satisfactory credit check would look like.

Credit reports don’t predict job performance. But they can perpetuate inequities.

Boswell is not alone in finding that credit problems became a barrier to getting a job, though the exact number of people who lose jobs for this reason is unknown because background screeners and employers don’t disclose data. Credit reports were created to help lenders judge the risks with making a loan, but they are now used by an ever-growing number of employers to judge candidates’ supposed trustworthiness when handling money or sensitive information.

These employment credit checks are common in the financial sector but happen in other industries as well, said Chi Chi Wu, an attorney at the National Consumer Law Center who focuses on fair credit reporting. Wu gave legislative testimony in 2019 on the problems with using credit reports for employment purposes.

In 2018, about one-third of hiring managers said they run credit checks on job candidates at least some of the time, and 16% said they did so for all candidates, according to a survey of 2,137 human resources professionals.

Several states, including California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington, along with New York City and Chicago, limit or ban the use of credit reports in employment decisions, but there are exemptions in those laws for certain sectors. Legislation banning the practice except when required by law or for a national security clearance passed the House of Representatives in 2019 but has since stalled.

One major reason critics have pushed for these laws and proposals is that previous research has found no link between credit report data ― such as late payments, debts in collection and charge-offs ― and job performance or termination. TransUnion, a major credit reporting company, acknowledged in public testimony in 2010 that there was no research to show any statistical correlation between what’s in somebody’s credit report and their job performance or their likelihood to commit fraud.

But still, the belief and practice persist.

“There is still a very strong myth out there that credit reports, credit scores reflect some sort of responsibility, that ability to manage your finances means that you are a responsible, you-have-your-stuff-together person. That’s not true. It’s about luck, circumstance and economic status,” Wu said, citing the racial wealth gap and the legacy of historic discrimination minorities face with redlining and debt collection, which results in lower credit scores for communities of color.

Boswell, who is Black, said credit checks perpetuate the white boys club in his industry. “I think it’s ridiculous to not hire people based on credit, knowing that in the atmosphere we currently reside in that you are actually going to be barring many minority applicants,” he said.

Wu said she has heard arguments that hold most employers are sympathetic and understanding of medical debt specifically — it accounts for 52% of collection items on consumers’ credit reports ― but counters with this question: “Why should [prospective employees] have to reveal private medical information in order to have to explain a debt collection item?”

Even if credit reports did predict job performance, Wu said, they shouldn’t be used because it’s too common for them to contain errors. A previous survey by the Federal Trade Commission found that 20% of consumers had verified errors on their credit reports. And according to a survey by Consumer Reports, 12% of Americans said they found at least one error when they checked their credit report this year.

Employers tell themselves stories about how ‘good’ or ‘bad’ credit means something about the ability do a job well.

Employers do not see traditional three-digit credit scores when they request reports, but the information they are given still contains a lot of data points, including bankruptcy records, mortgage debt, student loan information, car payments, debts sent to collection agencies and credit card account details such as balances, credit limits and monthly payments.

“They are trying to figure out did you not repay because it’s something about you as an individual ... or did you not repay because of some big-picture force that was beyond your control.”

- Barbara Kiviat, economic sociologist at Stanford University

But this information lacks a story, so hiring managers often make their own inferences and judgments during the interview process.

Barbara Kiviat, a sociologist at Stanford University whose research included interviewing 57 hiring professionals about how they use credit reports for employment decisions, calls this “moral storytelling.” Kiviat found hiring managers choose to assign blame for unpaid debts to either the person or their situation, and how they pick is subjective.

“They are trying to figure out did you not repay because it’s something about you as an individual and, therefore, I don’t want to hire you because you are going to bring that into my company, or did you not repay because of some big-picture force that was beyond your control,” she explained.

Kiviat described in her published research a situation in which a credit report was the deciding factor against two of three finalists vying for a school presidency. Both of these candidates were women with credit problems, one from a divorce and one from a mistaken foreclosure. The candidates each had to explain their situation to a recruiter, which satisfied the recruiter but not the chair of the school’s board of trustees, a banker who refused to hire either candidate.

As the headhunter later explained to Kiviat, “Someone like him, who comes from generation after generation of inherited wealth, has no idea how hard it is to maintain a good credit rating, but he sat in judgment of these women post-2008, and he held that against them.”

Kiviat said that employers don’t pull credit reports only to decide if a candidate is trustworthy. There are employers that would prefer not to look at credit history but do so because of regulation.

“If you’re a financial institution and you are getting regulated and you need to prove to your regulators that you are hiring financially responsible people, the credit record is an easy-to-understand way to do that,” she said. “In my research, investors sometimes would want to know: ‘Do you run credit on your employees?’”

Here’s what to do if you think your credit will get checked in the hiring process.

Under the Fair Credit Reporting Act, employers are required to share a copy of the report they pulled and should give candidates the opportunity to explain any items in the report before a rejection happens, Wu said.

Wu said the best thing for job candidates to do if they find themselves in this situation is to check their credit report for errors and issues, and to explain their side once they get the report.

“The big ‘if’ is if employers are actually following the law and are giving you the report before they make a decision,” she said. “Oftentimes we find out they gave the copy of the credit report, but they had made their minds up.”

Getting ahead of the story is Kiviat’s best piece of advice. “You don’t want the first time that the employer knows there is a problem to be when they pull your credit report,” she said.

Kiviat said that successfully getting ahead of the story includes a “moral redemption dance” that shows a job candidate is sorry and is taking the debt seriously, but it can also communicate “It wasn’t me, it was the circumstance.” That way, when employers do run the credit check, they are doing so with the candidate’s story in mind.

When is the best time to disclose this sensitive information? Kiviat said it’s tricky: Doing so too early can rule a candidate out, so she recommends waiting until the end of the interview stage, when it’s clear the employer will run a credit check.

At the same time, Kiviat notes that giving practical advice for sharing personal information in order to obtain employment is horrible. “I don’t want to live in a world where that’s good advice, but I actually do think that’s good advice,” she said. “It’s not good that people get put in these really uncomfortable situations.”

Boswell said his experience left him “deflated.” He’s working on improving his credit and is weighing a career switch, even though his degree in finance and years of experience in investing make him reluctant to do so.

“I have a unique set of skills that I’ve developed in this industry, that only really apply to this industry. I don’t really know where I go from here,” he said. “I definitely want to work. I want to survive, I want to live, and to do so I need money.”

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