States Stepping Up To Limit Pre-Employment Credit Checks

If you're unemployed and suffering from bad credit, a growing number of states' lawmakers want to remove one barrier between you and a new job: a credit check.

Across the United States, legislators are working to remove employee credit checks as an obstacle to job seekers with poor credit. Based on a survey conducted in 2009 by the Alexandria, Va.-based Society for Human Resource Management (SHRM: undefined, undefined, undefined%), 60 percent of employers said they conduct credit checks on at least some prospective hires. That means if your credit report includes negative items -- such as unpaid bills, foreclosures or even high debt levels -- it could potentially prevent you from getting a job.

That may change. A significant number of elected officials nationwide believe that in a difficult economy, a poor credit history shouldn't be a determining factor for job applicants.

"This is an obnoxious practice that has been excluding a number of perfectly acceptable, perfectly qualified job applicants," says Connecticut State Rep. Matthew Lesser, a Democrat who twice introduced a bill seeking to prevent the widespread use of employee credit checks.

Lesser isn't the only lawmaker fighting to help job applicants overcome poor credit. Since 2007, three states -- Hawaii, Washington and Oregon -- have enacted legislation limiting employers' use of credit information. So far in 2010, data from the National Conference of State Legislatures show that lawmakers from 18 other states and the District of Columbia have introduced legislation that aims to limit the use of credit information in employment decisions. Additionally, an amendment to the federal Fair Credit Reporting Act was introduced to prohibit the use of most employee credit checks nationwide. "You see this black stain of bad credit tarnish a lot of communities in my state and, I suspect, in states across the county," Lesser says.

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How Bad Credit Can Affect Job Prospects

We all know that our personal credit history affects our ability to secure a home loan or open an account at a department store. But most Americans are unaware that bad credit could cost them a job. Employers can refuse to hire applicants because of their credit history.

Many employers use credit history as a tool in their pre-employment screening as just one measure of judgment and character. If you can't manage your financial obligations, they wonder if it's a sign of irresponsibility. If your monthly debt payment is higher than your salary, some employers worry that it may distract from your performance.

Considerations for Better Background Checks

Executives faced with increasing concerns over the screening process for potential employees need to make better use of the tools already available to them, experts said.

Labor and employment attorneys say that the proper screening of employees is becoming an increasing problem faced by many companies. Some of the problems include making a hire that turns out to be the "wrong fit," hiring someone who is not qualified for the position and hiring people who are unproductive.

Avoiding Hiring Employees that are Going to Cost you Money

Investigation News - Avoiding Hiring Employees that are Going to Cost you Money - PInow.com Investigator Directory: "The statistics are nothing short of daunting. According to the Association of Certified Fraud Examiners, employee fraud cost the country more than $600 billion in 2003 alone. According to the Department of Commerce, one third of all workers steal from their employers. The same findings suggested that 68.6% of employees who steal do not have criminal records. According to the US Department of Commerce, more than 30% of all business failures can be attributed to bad hiring practices.

There is obviously a big problem when it comes to hiring. It is extremely difficult to separate the honest and effective employees from those potential employees who will end up driving your business into the ground. That’s not all: most employers agree that hiring time is a time of extreme stress, which just adds to the possibility of hiring mistakes. Most employers begin their employee search when they are short-handed and short on time, meaning that the resources needed to make careful decisions are simply not there. Most employers want to hire fast, which sometimes means just cursory looks at potential worker applications..."

What Can Employees Do?