Ask Money

The Wonder Woman of our wallets

Carmen Wong Ulrich Dec 18, 2013

There goes Senator Elizabeth Warren again, working to corral bad business practice with her lasso of truth. The founder of what became the Consumer Financial Protection Bureau continues with her “Justice League” ways by introducing yesterday a bill called the Equal Employment for All Act which would prevent employers from requiring job applicants to inform them of their credit history or to disqualify job hunters based on their credit rating.

Using credit history as a tool for gauging the potential risk of hiring someone was a practice once reserved mostly for fields where security and money-management are day-to-day tasks: Accounting for example, or human resources. But now, nearly 50 percent of all employers use credit history as part of your application process. To use your credit history as a character reference may seem useful, but it’s only a useful trust-reference if your credit history is bad because you’re irresponsible with debt. Trouble is, that’s not usually the case these days. As Senator Warren says:

“People shouldn’t be denied the chance to compete for jobs because of credit reports that bear no relationship to job performance and that, according to recent reports, are often riddled with inaccuracies.”

Millions of Americans, particularly the long-term unemployed, have found themselves with bad credit history and resulting credit scores due to just what they’re trying to rectify by applying for a job: A lack of income.Others fell behind because of medical debt. As we all know, getting sick in this country can put a major kink in your financial life.

But the other, possibly bigger reason, as Warren mentions, as to why using credit histories in this way is bunk has to do with accuracy and oversight. The credit reporting agencies — Experian, Transunion and Equifax — are businesses. Big businesses. It’s in their best interest for our credit to be used to determine nearly everything in life. Credit reporting agencies are very much like the pharmaceutical business, where there’s a lot of “You need this.”  

If the agencies were fantastically accurate and quick to correct errors on your credit reports, I’d have a lot more faith as to how reliable our credit histories can be. But there are too many mistakes and omissions in our credit reports, not only within our overall histories but between agencies.  

Think it only happens to other people? When’s the last time you looked at your FICO scores? (The credit scores that are in the widest use.) These scores are built off of your credit reports. So if these agencies are each accurate with tracking your credit, using supposedly the same parameters of fact-finding, why do most of us have three, sometimes three very different, scores? My own scores vary between 25-30 points. And I have great credit.

Life happens. People get sick. They lose jobs. They’re not running around Bergdorf’s swiping credit cards for bags or ties. And that job they’re applying for may be just what’s needed to get their credit back in shape. Hardship should not be a reason to be denied a job.

Keep on swingin’, Ms. Warren.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.