Credit History: Is it Any of Your Employer's Business?

Two Views On the Use of Credit Screening in Hiring

Ron Elwood believes that with few exceptions, employers should not be allowed to consider a job applicant's credit history.

Ron Elwood

Ron Elwood, Staff Attorney, Legal Services Advocacy Project at Mid-Minnesota Legal Assistance

As staff attorney for the Legal Services Advocacy Project, Elwood advocates on behalf of Legal Aid clients for policies that improve the lives of low-income consumers. He argues that with few exceptions, employers should not be allowed to consider a job applicant's credit history.

Question: A lot of people are having credit problems these days, and it's been suggested that it might be a good idea to have some legislation that would limit the ability of an employer to use someone's credit history when they're making a hiring decision. What's your position?

If you are not paying your bills on time, or you've defaulted on something at some point in the past, I just am not sure where the relationship is to working at any job.

I think generally that's a really good idea, except perhaps where the issue of credit is inextricably involved with a job's day-to-day activities, such as, for example, a bank teller or something like that where there is some relation. If you can prove that there is a close relationship between credit history and of the nature of the job, there may be some merit there. But I think for the most part, there really should be little relationship between a person's credit history and their ability to perform a typical job.

Question: Is it your sense that the use of credit history is widespread for a lot of jobs that don't have anything to do with credit or financial ability?

It seems that the use of credit history is becoming more widespread for a whole bunch of things, including, for example, insurance — the actual offering of insurance, or the rates for insurance, depending on your credit score. But there is really not a lot of connection between whether or not somebody is paying their bills on time. Also there are a whole host of problems in the credit reporting industry. The Federal Trade Commission recently issued a report explaining how the system is broken — that's the word they use — broken. The wrong people are being sued, people are being sued for the wrong amounts, people are being sued after the statute of limitations has expired. Because there are all sorts of flaws and efficiencies in the system, somebody's alleged credit history may not even be accurate. So to base a job offer, or an evaluation about a prospective employee, on erroneous information or potentially erroneous information, or where there is a strong likelihood that the information is erroneous, seems to me completely wrong and unfair.

And second of all, even if the information is accurate, there are a whole host of reasons why people are late in paying their bills — medical problems, all sorts of issues. So if you are not paying your bills on time, or you've defaulted on something at some point in the past, I just am not sure where the relationship is to working at any job.

Question: But what would you say to the employer who says, there is a character issue here — that someone who pays their bills on time and is financially responsible, is more likely to be a responsible employee?

I think that is an assumption that has no basis in fact. It's an assumption that is significantly flawed, because there are a myriad of reasons as to why folks don't pay. Explain to me how somebody who has been a homeowner for 25 years, and got themselves hoodwinked by a subprime lender, and all of the sudden is in foreclosure, is an irresponsible citizen or an irresponsible worker. You cannot paint with one brush every single person who is late or hasn't paid a bill and characterize that person as irresponsible.

Question: What would you say to an employer who said, “That might be true, Ron. But at least some people who get themselves into debt are irresponsible – people should pay their bills, and if they don't, that tells me something I want to know as an employer.”

My response to that would be: show me one empirical, credible, evidentiary study that makes a link between job performance, responsibility, personal responsibility, all those characteristics, and bill payment history. I don't believe there is one, and until there is such a study that's credible and is based on sound science, then this myth or perception, without any evidentiary basis, should be completely discredited.

Question: You mentioned that it might make some sense to allow employers to consider credit history for jobs that relate to credit or financial management. What about the argument that these days a lot of employees have access to financial data — even the restaurant waiter who swipes your credit card — and that as a result, employers have a lot to worry about in terms of financial risk?

My answer to that is: If you've been convicted of a crime — if you've committed fraud or embezzlement or theft — and you're dealing with people's finances, that's relevant. Criminal history is relevant, especially for jobs in the financial area. But credit history — I'm not sure what connection that would be. It's not relevant.

Question: You mentioned that credit scores can be inaccurate. But doesn't someone who has bad credit because of inaccurate data have the opportunity to get that information corrected? And if they are applying for a job, wouldn't they typically have an opportunity to explain things?

There is always an opportunity to explain, but once you've got the “Scarlet letter,” the explanation may not matter anymore. It's a very similar situation to the eviction histories that people carry around, when they're trying to get housing. To get an eviction on your record, there is no necessity to be found to have actually not paid the rent — it's simply a filing in court. And similarly here, you've got a filing in court, or a summons and complaint which has never even been adjudicated, that there may have been a problem. So it's essentially suggesting somebody is guilty before they are proven so.

And on top of that, even if you attempt to correct your credit history and get accurate information, the ability to do that from a consumer's standpoint — the success rate of correcting incorrect information — is not sterling at the credit reporting agencies. So the system itself is dramatically flawed. To use a dramatically flawed system to evaluate somebody's performance seems to me to be unfair. And again, whether or not you can explain something — that does not address the fundamental question as to whether or not credit history is relevant in any way to the performance of the job in the first place.

Question: Some would argue that one way the credit system is flawed, is that it can discriminate against certain groups, such as people who might be targeted for predatory lending practices. What's your take on that?

I think that is a huge concern. There is definitely some disparate impact in that arena. And moreover, here is the anomaly of the system: somebody has a terrible credit record if they've paid every bill they've ever had in cash. So if they've actually never used credit, but they've never owed anybody a dime, and they've never been behind on any payments, in the eyes of the credit reporting world they're a bad credit risk. They're deemed to be credit risky when in fact they're the most creditworthy. Not only does the system not lend itself to this kind of situation, it's just fundamentally unfair and irrelevant.

Question: What else should people know about the system and about what we might need to do to fix it or change it?

Credit is not as easy to get today, and that's probably a good thing because the problems of easy credit I think were among the main causes of the downfall of the economy. So I think the system will self correct on one hand, and on the second front, we have now an entity, an oversight entity, that can begin to address some of these problems on a national scale.

I'm frequently confronted with the proposition that, we need to focus on personal responsibility. Of course, that's true — nobody would argue with that proposition. We all need to be responsible as consumers. On the other hand, things happen to folks. Divorce and medical bills are the two primary reasons people get into debt, and now we've got a third: we are in a terrible economic crisis where unemployment is as high as it's been in quite some time. And it's very difficult to make ends meet when you don't have a job and you find yourself in a situation that you never thought you'd be in in your life.

But at the same time, it's not only individual consumers who have to be responsible. There is a corporate responsibility. And I think one of the lessons we've learned from the Wall Street debacle and the economic mess we're in, is that there was some irresponsible behavior not on the part of individuals, but on the part of huge, huge corporations and conglomerates. And my argument would be, we all need to be accountable, not just individual consumers. I think financial institutions and all of us have a responsibility.

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Note: The information in this section appeared in the Winter 2011 edition of the Department of Human Rights newsletter, The Rights Stuff. The newsletter includes additional material related to this topic.

On Video from the Department of Human Rights

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Your Credit History – What Should Employers Know?

Does a credit score say something about a job applicant's character, or are most people with bad credit in that situation through no fault of their own? This half-hour video includes interviews with Darryl Dahlheimer and Ron Elwood. Available on the department website ( and YouTube (