If you’ve declared bankruptcy in the past, be prepared to defend that decision to a potential employer. It’s illegal for an employer not to hire or promote you because you filed bankruptcy, but it’s sometimes OK to consider bad credit, which usually precedes bankruptcy.
Companies often check credit when a job involves finance, accounting, cash or valuable merchandise and when a position requires a security clearance. “The one broad, overarching law in this area is the Fair Credit Reporting Act, and it doesn’t put much of a whammy on employers snooping around in people’s credit,” warns attorney Barbara Kate Repa, author of Your Rights in the Workplace.
Bad credit is more widespread than you’d suspect. Barry Nadell, a senior vice president of Kroll's Nashville-based Background Screening division and author of Sleuthing 101: Background Checks and the Law, says about 42.4 percent of the credit checks his firm runs come back with bankruptcies, liens, judgments or accounts that went to collection.
Kroll recommends a credit check only when a job candidate will be working in a position that can affect the company financially. That’s sound advice in light of the fact that US Equal Employment Opportunity Commission (EEOC) officials have warned employers that unnecessary credit checks may disproportionately screen out African Americans and Hispanics.
When a potential employer checks credit, you’ll be asked to sign a permission slip first, says Jennifer Brown Shaw, a partner at employment law firm Shaw Valenza LLP. “The most important thing is for the applicant to tell the truth,” she says. “They’re sure to be fired if they lie.”
If you’re told only that the company will do a “background” check, ask what that check includes and how the information will be used. To see what’s on your credit report, get a free copy.
If your credit is poor or you’ve filed bankruptcy, be ready to provide interviewers with a short, contrite explanation and to redirect the conversation to one of your strengths as well as to a reference who can back up your story. Shaw suggests something like this: “I’m not irresponsible. Here’s the reason for my poor credit -- divorce, medical problems while uninsured, etc. I hope you’ll see what’s relevant is my ability to X, Y and Z. If you call my former employer, you’ll hear that I was an excellent....”
Knowing vs. Using
The fact that a potential employer pulls credit and that yours is poor doesn’t mean you won’t get the job. “A lot of companies do a credit check when they’re doing background checks, but it’s there as a complement,” says Jason B. Morris, president of employeescreenIQ, a global background screening company. “You might use it as the straw that broke the camel’s back, but never as the primary reason for a decision.”
Knowing They Used It
If you do suspect a company is using your bankruptcy as the reason not to hire you, call and ask if your credit was a problem and which area of your credit was the issue, so you’ll know what to disclose next time.
If the answer is bankruptcy, you can file a complaint with the EEOC and call the US Federal Trade Commission’s Consumer Response Center at 1-877-382-4357. You can also contact the local consumer protection agency or your state attorney general.
Regardless of what you do, don’t expect much action. “There are lawyers who will take on these cases, but most won’t take it on contingency,” Shaw says. If you’re a low-income earner, you can seek help from legal aid.
At the very least, make one more attempt to change the interviewer’s mind. After all, if you made it through to the credit screen, there must be something about you that appealed to the interviewer, Shaw concludes.
Want to learn more about credit checks? The FTC has a fact sheet about employers’ use of credit checks. The nonprofit Privacy Rights Clearinghouse offers five fact sheets (16, 16a, 16b, 16c and 16d) about credit checks and employment.
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