Credit Score Articles

Lawmakers Attack Hiring Practices

A growing number of states are taking a close look at policies that allow employers to use credit scores when making hiring decisions.

One of the most recent examples comes from Minnesota, where St. Paul television station KARE reports on an effort by State Senator Jim Carlson to do away with the practice. Carlson's legislation would also reportedly prohibit companies from using credit scores for firing or demoting workers.

"If you've fallen into hard times, lost your house or lost your job and then your house, that can really affect your credit score tremendously. My issue is I want to make sure we don't deny employment to people who don't have any personal behavior to blame for their low credit scores," Carlson was quoted as saying by the television station.

A number of other states have eyed bans against the procedure, which is generally defended by some companies as a way to screen out people who may be untrustworthy with financial matters. However, the controversy comes at a time when millions of Americans have seen their credit scores plummet simply because they have lost jobs and have been unable to find new ones so far, putting them at greater risk for mortgage foreclosure and credit card delinquencies.

The practice is most common among financial services companies, but a survey by a leading human resources organization found earlier this year that it has spread to about 60 percent of companies. Critics of the policy also point out that those with damaged credit scores may often turn out to be more motivated and hard-working than average, simply because they are taking advantage of an opportunity to rebuild their personal finances.

There is also a similar controversy brewing in some states over the use of credit scores to set auto insurance rates. Some in the insurance industry defend this practice by saying that people with lower credit scores are statistically more likely to end up filing claims. However, opponents of such policies have cited the absurdity of a situation that could result in a person with a DUI conviction potentially paying less for auto insurance than a person who lost their job and missed some credit card payments.

The controversy over using credit scores in hiring decisions may become even more pronounced in the coming months now that there are signs that hiring is starting to pick up in some parts of the country, although the unemployment rate does remain at 9.7 percent nationwide.