Two years ago, when Emma Alda was offered a new job in accounting, on the condition that she pass a background and credit check, she was so excited and confident that she didn’t hesitate to give two weeks’ notice of anticipation to your employer of that time.
So Alda was shocked and devastated when the new company informed her that there was a problem on her credit report and it was so serious that jeopardized the offer. She thought it was a mistake.
Turns out Alda was right: One of her credit reports showed that a local hospital had run an incident credit inquiry (the kind of inquiry you do when requesting a loan) nearly a dozen times, when she had only applied for a payment plan . It was a hospital mistake. But when Alda identified the problem and solved it, the damage had already been done: The company had already hired another person.
“I never thought that something would prevent me from securing my position,” says Alda, mother of three children who had to face unemployment. “I had already received the job offer in writing.”
Checking a job candidate’s credit report has become common practice. About a third of companies said they conduct credit checks on at least some job applicants, according to figures from the Professional Background Screening Association (PBSA), an industry group, while the 14% said they check the credit reports of all applicants.
In addition, the 90% of companies carry out verification of Background information, which may include a credit check, of full-time job applicants. And some companies said they check employees who are being considered for promotions, transfers, or even do so annually as a matter of course.
But the problem for many people, like Alda, is that credit reports can contain errors. This happened to just over a third of the 5, 858 volunteers from a recent Consumer Reports study , who said they found at least one error when they carefully reviewed a copy of your most recent credit report for accuracy. And in a CR survey conducted in 2021 to 2, 223 adults (PDF) from all over the country, the 12% of Americans who ever checked their credit report said they had found at least an error last time they checked.
Credit reporting errors seem to be on the rise, as complaints about them to the Financial Protection Bureau more than doubled between 2019 and 2020.
“Common errors, such as when the file gets confused with someone else’s because it has a name or an address similar, or the Social Security number has one or two digit errors, or an account that has been closed is reported as open, they may appear minor, but in fact they could prevent you from being considered for a job or a promotion, ”he explains. Syed Ejaz, Policy Analyst at Servi
“Just when the economy is opening up again and companies are looking to hire staff, some people will face the harsh reality of being denied a job. I work because of an error on your credit report, ”says Ejaz.
Certainly, credit reports are just one part of a background investigation, which may include different types of checks, depending on the position the company is hiring for, says Melissa Sorenson, CEO of PBSA. “Most employers include some form of criminal background check,” he says, and that can include “verification of education, employment history, driving record, and more. Social media searches have also gained popularity in recent years for some positions. ”
Bad credit does not mean a bad employee
One of the problems with using credit reports in recruiting, according to consumer advocates, is that they were not created to predict a person’s performance at a certain job, and none of the people CR spoke to may show studies or data that suggest otherwise. However, employers often rely on credit reports when hiring employees for all types of jobs, says Amy Traub, associate director of Demos, a policy and research organization, where she deals with the financial problems of employees. consumers. Traub has testified before state legislative bodies on this issue.
For example, Traub says their research shows that companies check credit reports when they hire IT staff, delivery truck drivers, and even dog walkers.
“We know that credit reports were developed to help lenders evaluate the risk of a loan, not to help choose a dog walker,” says Traub, “however, they have been marketed by the credit bureaus and vetting firms as a way to assess a person’s character and trustworthiness. ” But, he says, a credit report “is not a crystal ball.”
The practice is so questionable that nearly a dozen states strongly restrict it in most circumstances, according to research by Demos. For example, in Colorado , the law limits the credit information that companies can request, unless it is substantially related to current or potential work of the employee, including jobs in banks or other financial institutions, in the security forces or that involve the handling of financial information.
Other states that restrict this practice are California, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington, along with the cities of Chicago and New York.
A bill that passed the State House of Representatives United in January of 2020 but that did not pass the Senate, would have basically prohibited, among other financial reforms, this practice, except in cases where it is required by law or in jobs that require national security authorization. The Equal Employment for All Act, a bill introduced in the House of Representatives earlier this year by Rep. Steve Cohen, D-Tennessee, would have the same effect.
Credit reporting and discrimination
One of the most worrying aspects of using credit reports to predict ability of a person to do a job is that the highest rates of people in communities of color and in low-income neighborhoods have no credit history and therefore no credit reports. This occurs with around 15% of people of race black and Hispanic compared to 9% of white people, according to figures from the Consumer Financial Protection Office.
It is also a problem for a job seeker to have what is known as a “weak credit history”, that is, a history that has too little information to even generate a credit rating . This is a situation that people of color also face disproportionately. In a recent analysis of people with weak records, the Urban Institute, a social and economic policy research group, found that the 32% of black people, compared to 18% of white people have weak records.
Either situation (not having a credit report or having an insufficient one) can affect a person’s chances of being hired, says Linda Jun, senior advisor on consumer finance policy at Americans for Financial Reform, a consumer advocacy organization.
Of course, being unemployed can negatively affect any credit report you have that is late in payments or bills go to collections. This situation, according to Traub, is too common in the communities of black and Hispanic people and reduces the probability that they will get a job.
Here we explain how to protect yourself and what you can do if an offer Job or promotion is rescinded based on your credit report or other background check items.
Before applying for a job
Note that a business must first get your written permission to do a credit check and background check, says Mark Mailman, attorney for Francis Mailman Soumilas of Philadelphia , which specializes in consumer protection law. Still, it’s a good idea to take preventative measures to find out what a potential employer might find.
Check your credit report
You can get free weekly reports from each of the big three credit bureaus: Equifax, Experian and TransUnion, at AnnualCreditReport.com . You have to be prepared to answer a number of safety questions that can be difficult: Some of the CR study volunteers said they were stumped by the questions and therefore could not access their reports. Some said they had to request the report in writing.
Checking your credit report before applying for a new job could have helped Emma Alda, who went on to co-found an online fish care company. “I thought the job was already mine,” he says. Now, she keeps a close eye on her credit.
Dispute the errors you find
Because credit reports may include information about your employment history, you’ll also have to ask to have mistakenly listed companies you never worked for be removed from the list, says CR’s Ejaz. Some people who volunteered for the CR study said they found companies on the credit report that they did not recognize and had no relationship with.
Disputes are best resolved if you describe the problem in your own words in a letter sent by certified mail along with additional supporting documentation. This is to help create a document record in case you need to take legal action against a credit bureau if the credit bureau refuses to correct an error or does not follow federal guidelines for handling the dispute. This process could take up to 30 days and possibly longer if the dispute is complex, says Mailman .
Consider adding previous employers in the report
This is because some companies may verify your resume with companies listed as previous employers on your credit report. You can request that this information be added in the same way that you file a dispute, by registered letter.
You can include a personal statement
In your own words, you can submit any information that can help explain an obvious problem on the report to each of the three major credit bureaus. Perhaps you are in the middle of a dispute that will take several months; you could add a note explaining it. Or if you lost a dispute but want to explain that a payment was late 30 days because there was a death in the family, for example, you can take the opportunity to Please explain.
These statements are automatically attached to the credit report so that anyone who views it can read it and see the context of the errors or the explanation of the attempts to correct them, says Bruce McClary, Vice President of the National Credit Counseling Foundation, an organization that helps consumers improve their financial profile. For Experian, statements remain in the report for up to 24 months unless you delete them. TransUnion and Equifax say that the statements will remain on the report until you request that they be removed.
If you are denied a job or promotion
The Fair Credit Reporting Act (FCRA) governs the operation of most of this process, says Mailman, and companies are required to comply with federal law. Some states may have more restrictive laws. In general, as Alda learned, companies don’t have to keep the position open while you take steps to explain or correct errors or items in your report, Sorenson says.
That said, they have to follow certain procedural steps, says Mailman. To begin with, a company must notify you of the possibility that it is about to take an adverse action based on one aspect of your credit history or history, which is called “preliminary notice of adverse action.”
Alda was contacted by phone by her potential employer to inform her of the adverse finding, but not all employers follow the rules. In 2015, an Uber driver, Abdul Mohamed, was suddenly banned from the driver app, so I could no longer pick up passengers. He later learned that it was due, at least in part, to an item the company identified in his credit file, prompting Uber to fire him without notice. Mohamed filed a class action lawsuit against Uber, alleging that the company had violated the FCRA by not giving him advance notice. The parties reached an agreement.
If you have received a notice of adverse actions, consider the following steps.
Request a copy of the report and the name of the detection company that provided it
If an employer or prospective employer notifies you of an “adverse action” they intend to take, they must also give you a copy of the report they used to make the decision and notify you of your rights under the FCRA, says Jun, of Americans for Financial Reform.
Try to determine what triggered the possible action
Under federal law, a The company does not have to explain or identify what specific information in the report triggered the possible adverse action, Mailman says. It’s often obvious, he says, especially if it’s a mistake, as in Alda’s case. But there are situations where “you may not know what made someone not want to hire you,” says Traub. “It can be completely arbitrary and potentially discriminatory.” Still, Mailman suggests asking for specific details, knowing the employer may not provide them.
Prepare an explanation
The company It should give you a reasonable time to explain the problem, if you know what it is, or resolve the error, says Mailman. But how much time they will give you is something that is not written: Alda was not given a specific time; she says she was hinted to contact them in a day or two. Mailman says the above cases suggest that three to five days is the usual amount of time before the company is free to hire someone else.
Consider privacy concerns
One of the problems with giving an explanation is that you may need to offer personal details that you would rather hide Jun says. That can include personal medical information if you have medical debt, or the financial details of a divorce or bankruptcy proceeding, neither of which you would have to disclose when you’re simply interviewing for a job. If the work is not worth the invasion of privacy, you may prefer to keep your personal matters a secret.
Do you feel that your rights were violated?
Under the FCRA, consumers have the right to sue a credit bureau, or even an employer, if they can prove that the FCRA was negligently or intentionally breached. In some cases of complicated reporting errors involving identity confusion, hiring an attorney may also be the best recourse, Mailman says. If you file a lawsuit and win, your attorney’s fees will be paid.
Consumer Reports is an independent, nonprofit organization that works side by side with consumers to create a fairer, safer, and healthier world. CR does not endorse products or services, and does not accept advertising. Copyright © 2021, Consumer Reports, Inc.
Consumer Reports has no financial relationship with the advertisers on this site. Consumer Reports is an independent nonprofit organization that works with consumers to create a just, safe, and healthy world. CR does not endorse products or services and does not accept advertising. Copyright © 2021, Consumer Reports, Inc.