July 22nd, 2010

Bad Timing: More Employers Do Credit Checks As More Consumer Credit Scores Fall

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looking for a job

It’s a pretty vicious cycle—without a steady paycheck, unemployed Americans’ shaky financial situations can often plummet credit scores, especially since unemployment often pushes consumers to rely heavily on credit, or miss bills here and there, or even declare bankruptcy or foreclosure.

At the same time, employers are increasingly doing credit checks to screen job applicants. So if unemployment is worsening your credit, it may very well be the things that costs you a job.

According to a survey reported by CNN Money, 60% of employers currently use credit checks for at least some of their job openings, a big jump from the 35% of employers reported in 2003.

This is bad timing considering consumer credit scores have been reportedly sinking to new lows. 25.5% of consumers—nearly 43.4 million people—have a credit score of 599 or below. That means 1 in 4 consumers are considered poor credit borrowers and don’t have the credit to qualify for most loans and credit cards due to stricter lending standards. According to the Bureau of Labor Statistics, the unemployment rate hovers at 9.5%, equal to 14.6 million Americans. Now, given the grim financial situations many of these unemployed Americans are facing (with nearly half of them unemployed long-term for 27 weeks or more, reports the Bureau), how many of the 14.6 million unemployed also fall into the bracket of the 43.4 million who are struggling with poor credit?

That isn’t to say that unemployment immediately leads to poor credit. But without consistent income coming in, keeping up with mortgage payments, credit card bills, and more become financial hardships that heavily impact credit scores. When it comes to perfect on-time payments to maintaining a 750 credit score, or skipping this month’s car loan payments to put food on the table, unemployed Americans are facing a rock, a hard place, and strict job-hiring practices too.

“You get in a Catch-22: You can’t pay your bills because you don’t have a job, and now you can’t get a job because you can’t pay your bills,” quotes CNN Money. While a handful of states have passed laws restricting employer’s use of credit checks in hiring decisions, many businesses claim that a credit check is pertinent to weeding through job candidates to asses “financial responsibility and financial stability”. Consumer advocates argue that job seekers are being unfairly judged on the surface of their credit standing as “a proxy for character reference”.

What do you think? Are these credit checks an acceptable aspect of the job hunt? Share your thoughts with us!

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

5 Comments

  1. I think that credit checks by employers is an invasion of privacy. It’s not like they are extending credit to you. I can see a need for jobs involving money, at a bank for example, but credit checks prove little.

    Westley at 7:53 pm on July 22, 2010
  2. The above thought is smart and doesn’t require any further addition.
    It’s perfect thought from my side.

    john

    john at 2:45 am on September 13, 2010
  3. How can you be financialy stable and responsible when you have no job? This makes no sense. There is absolutely no documentation or proof that a good credit score has anything to do with job performance or whether or not someone will steal from their employer. I understand a criminal background search – but a credit score check? NO WAY!

    TheUglyTruth at 9:52 am on September 16, 2010
  4. I work at a casino as a dealer and many good dealers do not get hired because of bad credit, specifically high outstanding debt.

    Paul at 4:15 am on July 3, 2012
  5. I think its messed up employers checking credit scores. How do they expect you to fix your credit score if they wont hire you to fix it. No body is perfect and everyone deserves a chance to be given a chance to prove thems selves based off performance not credit history. If it had something to do with a job at a bank or any job with handling money ok i can understand but other then that. Its just crazy.

    mike at 9:00 pm on August 23, 2012

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