Based on some of the employers' comments in the article, there seems to be a widespread belief that a tarnished credit report necessarily results from "bad decision making" and that it is evidence that an employee is "unreliable, unwise or too susceptible to temptation to steal."

Last week, the NYT ran a piece describing how common it has become for employers to use the credit report as a screen device for job applicants (" Another Hurdle for the Jobless: Credit Inquiries "). In a nutshell, if your credit report shows too much debt, a bankruptcy, or a low credit score, employers don't want you.

Where the heck is the evidence for these assumptions? Just because someone has a low credit score or has filed for bankruptcy does not make him or her a shady untrustworthy character. It's much more likely that the person has experienced a job loss, medical expenses, break up of a family, over-the-top credit card fees and interest, or an attempt to avoid home foreclosure. A quick read of the bankruptcy literature will show that.

A couple years ago (2007), I published an article in Journal of Poverty using the CBP data describing the ways in which a bankruptcy on the credit report undermines the fresh start ("Personal Bankruptcy and the Credit Report: Conflicting Mechanisms of Social Mobility"). Over half of the respondents reported that they had been denied housing, transportation, credit, or employment explicitly because of the bankruptcy on their credit report. Respondents were denied jobs in accounting, mortgage lending, and even the moving and packing industry. Others were fired when their employers learned of the bankruptcy: one worked for the Traffic Safety Administration, one as a construction worker, and another as a clerk.

I know that some people are arguing that if the job is not tied to money and finances, the information in the credit report should not be used in hiring decisions. For example, in Hawaii, it is now apparently illegal to pull the credit report until after the job offer has been made, and then the credit check has to be directly related to the job qualifications. I would push further--even if the job has to do with money, the credit report should have no bearing. The fact is, just because someone's credit report is blemished does not mean they can't handle or be trusted with money. Consider the folks on Wall Street or people in the mortgage lending industry or even bank tellers and lenders at your local bank who, because of the shrinking economy, have lost their jobs--and then probably fallen behind on their bills, thus damaging their credit report. How much sense does it make to deny them jobs in the financial world? Not much.

I want to share one CBP interview that I will never forget--and which illustrates my point beautifully. The guy had been in college earning a B.A. in accounting when he and his wife divorced. He got the kids, who were quite young at the time. He worked part time, but of course, there were no medical benefits. His son had some stomach issues and he had to go to the emergency room a couple times. The result was large medical bills that Dad could not repay. Eventually, because of the mounting medical debts, he filed for bankruptcy. Fast forward to college graduation. He's on the job market as an accountant. He lands several interviews with good firms--and the initial interviews go very well. Before the second interviews, all request his permission to pull a credit report. Of course, he agrees. Once they learn of the bankruptcy, he's dropped like a hot potato--no more interest in hiring him. One of the HR folks actually told him that given his bankruptcy, they didn't feel that he could be trusted. Baloney. This guy was working hard to pull himself up by his all-American bootstraps and instead he got slapped down.

I'm going to have to side with Representative Jon Switalski from Michigan on this one: Using the credit report as a screening device in hiring decisions is discrimination and is a practice that should be illegal. Moreover, from the point of the employer, it simply isn't a wise business practice--many smart and qualified folks are going to be overlooked just because of the economic downturn or someone in their family had the misfortune of getting ill.