Catch-22: Credit checks on jobless keep jobless unemployed

ORLANDO, Fla. - In the murky waters of the labor pool, a toothy surprise is waiting for the unemployed who've fallen behind on their bills.

It bit Tommy Powers when he applied for a job at a motorcycle dealer this fall. Powers, who was laid off in April 2008, had just graduated from mechanic's school and figured he had a shot at getting back into the workforce.

But the dealer checked his credit history, and the job prospect vanished.

"They said I needed better credit," said Powers, 54, of Orlando. "I've been laid off so long, mine's not as good as it used to be."

Employment experts say companies of all kinds are increasingly reviewing the credit histories of job candidates before making a decision about whom to hire. The idea, disputed by many labor advocates, is that credit history serves as a barometer for how dependable someone might be - or how tempted they might be to dip into the till.

But with unemployment stuck at double digits, and with more than 35 percent of the jobless out of work for more than six months, the practice creates an insidious feedback loop, critics say.

The pattern goes like this: Without a job, a laid-off worker can't pay bills and his or her credit history takes a beating. Without decent credit, they're rejected by potential employers and can't get a job. More bills go unpaid, and credit crumbles further.

"It's a vicious cycle," said Adam Klein, a New York employment lawyer, who says there's "no nexus" between credit problems and job performance. "It's a completely arbitrary barrier to employment."

Experts say 40 percent to 45 percent of employers now use some credit screening when evaluating job candidates. The reports they review don't contain actual credit scores, but do include information about payment history and outstanding debt.

Historically, a candidate's credit history mattered only in jobs where candidates would be handling cash or valuables. Credit reviews also are common in law enforcement and the security industry.

In recent years, as background checks have become cheaper and easier to conduct, employers have used them for all manner of jobs.

Nikki Trotter is a Lake Mary, Fla.,-based recruiter looking to fill a procurement job. Trotter said "it's imperative" the candidate have an acceptable credit history.

The information, she said, "can help you make a distinction" between potential employees.

But Art Durocher says the distinction may not be meaningful.

Durocher was a bank executive before being laid off in November 2007. In 2005, he wanted to hire a candidate for a teller job, but his boss was reluctant because the woman had credit problems.

Durocher's supervisor viewed it as "a character flaw," but Durocher, who'd talked to the woman, was convinced she'd just run into a rough patch. He pushed back and ultimately got approval to hire the woman.

"She was one of the best employees I had," he said.

Durocher said companies are being unreasonable if they reject job candidates without first looking at why the person's credit history is weak.

"There are a lot of people who could be good productive employees," he said. "But they're being profiled out simply because they lost their job."

Proposed federal legislation would curb the practice, prohibiting employers from using credit histories as part of the hiring process for many jobs.

Introduced last summer by U.S. Rep. Steve Cohen, D-Tenn., the Equal Employment for All Act has been endorsed by several worker and consumer advocacy groups, including the National Consumer Law Center, Consumer Action, the National Employment Law Project and the NAACP.

The bill would make exceptions and allow credit histories to be considered for jobs that require national security clearance, state or local government jobs and certain jobs in the financial industry.

In announcing the proposal, Cohen said, "It is unfair and makes no sense" to punish job candidates "who want to work hard but have had financial difficulties."

"At a time when people are struggling to find jobs, credit checks should not be used as a basis to deny employment to otherwise qualified candidates," he said.

Especially, Cohen said, when many credit issues are the result of "circumstances outside of the person's control, such as medical problems or layoffs."

TIPS TO BOOST YOUR CREDIT RATING

- Thirty-five percent of your credit score is based on your payment track record. Budget your income, cut back where you can and use the cash you save to pay off late bills and pay all others on time.

- Know your ratio of unsecured debt to available credit. Pare back your unsecured debt if it's more than 50 percent of your cards' credit limits added together. A maxed-out credit card also can hurt your score.

- Go to annualcreditreport.com and obtain your free credit reports from Equifax, Transunion and Experian, the three major credit-reporting companies. Review what they have on file for you. Look for errors; if any exist, dispute them and get them corrected.

(c) 2009, The Orlando Sentinel (Fla.).

Distributed by McClatchy-Tribune Information Services.