How Bad Credit Can Affect Your Chances Of Getting A Job

The Federal Fair Credit Reporting Act (FCRA) is an organization that develops national standards for employment screening. Their aim is to protect individuals from fraud and identity theft by credit reporting agencies and the sources they use to gather information. Of course, the FCRA’s standards are only applicable to background checks conducted by third-party credit reporting agencies, and do not apply when employers conduct their own employment screening.

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The FCRA calls background checks and employment screenings (that rely on credit) “consumer reports”, which also refers to your credit report in some cases. The laws on consumer reports vary from state to state, so it’s a wise idea to investigate the laws of your state in regards to such reports. Several states encourage the use of report, while others restrict the use of credit reports for employment purposes.

According to the Federal Fair Credit Reporting Act, certain actions cannot be reported. This includes, but is not limited to bankruptcies that were filed more than ten years ago; civil suits and judgments, and records of arrest from seven years after the entry or recorded date; tax liens that have been paid more than seven years ago; accounts placed under collection more than seven years ago; as well as any negative or derogatory information, with the exception of criminal convictions, that occurred more than seven years ago.

However, such restrictions do not apply for high-profile jobs or jobs that require additional security clearance. An employer may choose to conduct a background check through another method, such as private investigator which,the FCRA does not protect against. Additionally, jobs with a salary upwards of $75,000 are not subject to these restrictions, and any and all information may be used to make an employment decision.

It’s standard procedure for employment background checks or consumer reports to include a copy of your credit report. Credit reporting agencies such as Equifax, Experian, and Transunion provide investigating employers with a tailored copy of your credit report (sometimes referred to as an employment report). This report details your credit-payment history as well as any other credit behaviors that might influence an employer’s decision to hire an individual.

The tailored copy of your credit report resembles a credit report you would receive yourself, but eliminates information such as your current credit score and date of birth. Additionally, it doesn’t place a mark or inquiry on your credit file that would reduce your ability to make an inquiry yourself or lower your credit score.

This all sounds very intimidating for people with bad or “just okay” credit, but rest assured employer’s decisions aren’t a light matter. Under the Federal Fair Credit Reporting Act, the employer is required to follow a series of steps if information from the consumer report is used in determining an adverse action. Under the FCRA adverse actions are recognized as rejecting a job applicant, terminating an employee, voiding a job offer, or denying a request for or impending promotion.

By law, the employer is required to provide the applicant with a pre-adverse action disclosure, a detailed copy of the consumer report and information about the individual’s rights under the FCRA. As of January 1st 2013, Employers who use consumer report background checks are required to use and provide job applicants and employees with a Summary of Consumer Rights form at the time of application.

Employers are also required to clarify information and inform their employees and applicants that the Consumer Financial Protection Bureau (CFPB) should now be contacted for all inquiries and further information regarding such decision. The CFPB organization replaces the role of the Federal Trade Commission (FTC), which should no longer be contacted regarding consumers and their rights under the FCRA; CFPB now handles such enquiries.

The FCRA only allows employers access to information gathered from background checks ONLY after written consent from the employee or applicant has been obtained. Such information should be gathered at the time of application and/or change, such as a promotion, as the employer will be required to present this before a credit reporting agency releases this information. Additionally, under new requirements introduced as a result of CFPB replacing the FTC’s role in controlling the FCRA, employers are expected to prepare their clients. Because some credit reporting agencies conduct personal interviews to gather information, the employer must provide their employees and applicants with notification to expect, agree to, and complete an interview.

Under the FCRA, once the adverse action is decided on, the individual in question must be given a notice in the form of document. The document must include the name, address, and phone number of the employment screening agency, as well as a written statement stating that the company is not responsible for the adverse decision. Such documents should contain the name of the employer responsible the decision. The FCRA requires that a statement detailing the individual’s right to dispute the accuracy or thoroughness of the entire, or any part of, the report, as well as appropriate information for doing so.

The Federal Fair Credit Reporting Act only requires a one-time authorization, which means that only one notice and authorization is required to release consumer records to an employer. This authorization does not need to be renewed, even for obtaining additional reports at any future time during the individual’s employment. Employers are permitted to perform credit checks for the purpose of deciding whether or not to keep or release an employee; poor credit generally signals to an employer that an individual is more likely to commit fraud or theft from a company.

Employers may choose to periodically run credit and background checks for any reason they choose. If an individual feels that these checks are happening too often, the CRPB is available to handle any inquiries. Additionally, an individual may check to see if the laws regarding authorization of future credit checks in his or her state differ from federal regulation.

Bear in mind that the Federal Fair Credit Regulation Act is not responsible for overseeing all credit and consumer reports. For instance, if the employer has the means to conduct the screening process themselves, the FCRA does not require them to adhere to their regulation, leaving no basis for an individual to dispute the decision. Additionally, if the employer can find another reason to reject the individual, such as choosing a more qualified candidate, then they are not required to inform the applicant of an adverse decision adhering to the FCRA rules – an action an individual also can’t dispute.

Some states have developed additional regulations that limit the use of consumer reports for employment decisions. Such states require the report to only be used when the credit report will prove beneficial by being used to make a decision regarding employment for a position that has a significant connection between credit and job responsibilities (for example, measuring the credit score of a person who will be handling large amounts of cash is a good use of consumer reports). Washington state first implemented such restrictions in 2007, Hawaii followed suit in 2009, and later, Illinois and Oregon adopted the same legislation. California, Connecticut, and Maryland also put a law in place in 2011, with Vermont following in 2012. To date, these are the only eight states that currently have such systems in place, but the current state of the economy might sway decisions for these, as well as other states in either direction.

Although the laws throughout these states differ from one to another, it hasn’t stopped other states from proposing legislation modeled after them. Such types of legislation, as well as the Equal Employment Opportunity Commission’s (EEOC) belief that the use of consumer history has brought the negative effects such reports have on employment to the public’s attention. The economic state of the country has introduced many people to hard times, and has left many to rely on credit cards and loans to keep their families afloat, leaving high debt-to-credit ratios among people who would otherwise have good credit. As a result of consumer reports, many hard-working Americans may be turned away from decent jobs, making it that much harder for people, especially minority groups, to get out of debt.

Potential employers use credit history to determine how responsible an individual is. The EEOC explains that the belief that not paying your bills makes you irresponsible and unreliable is unfair, but the fact remains that employers have faced trying times as well. Bringing in a person who will likely steal from or commit fraud on the job will cost an employer more than an employee is worth in some cases.

A consumer report details more than your payment history. Such reports include information, addresses, and contact information of former addresses and previous employers, which can be used in accordance with your credit history to judge salary to debt repayment rations and check the accuracy of information you provide, as well as your reliability as an employee.

In today’s age, having bad credit is more damaging to you than it used to be. Because employers can use your credit to make a decision on employment, your bad credit is a threat to how soon you can pay off your debt. If you feel you have been wrongly turned away , have general questions and/or specific questions on whether or not a specific employer can use consumer reports for decisions, contact the CFPB or your state’s department of labor for assistance.