By Sen. Elizabeth Warren & Rep. Steve Cohen
Bad credit can happen for a lot of reasons, but today many people have bad credit through no fault of their own. Illness, job loss, divorce or the death of a loved one can plunge a family into unexpected hard times. In difficult circumstances like these, a drop in income or taking on more debt can badly damage a credit report—even for a person who continues to make every payment on time.
For countless Americans, the fallout from the financial crisis of 2008 continues to damage their credit. Consider the following:
- Negative credit information can remain on a credit report for seven years.
- When home prices fell, many homeowners were unable to refinance or sell their homes, and even today those short sales or foreclosures drag down their credit ratings.
- When customers cut back on spending, many small business owners closed their stores, and with outstanding debts or bankruptcy filings, they continue to deal with the fallout on their credit reports.
- When employers laid off workers, many were left scrambling for jobs that weren’t there, and without the funds to pay their bills, their credit reports often remain damaged to this day.
For hardworking people struggling to make ends meet, the only way to get back on their feet is to find a good job and earn a paycheck. But even when they are able to sell their homes—often at a loss—or after they are forced to close their business’ doors or find temporary work, that bad credit history continues to haunt them.
And despite the often-desperate effort to find a job, many employers are unfairly shutting the door on applicants with less-than-stellar credit. We should call this what it is: discrimination.
Credit reporting companies that sell Americans’ personal data to potential employers have pushed the narrative that a credit history somehow provides insight into someone’s character. But, as even a representative from the TransUnion credit bureau admitted, they “don’t have any research to show any statistical correlation between what’s in somebody’s credit report and their job performance.” In fact, research has shown that an individual’s credit has little to no correlation with his or her ability to succeed in the workplace. Credit reports are not a way to screen out bad potential employees; they are just a way to discriminate against people who have fallen on hard times.
Not only are credit reports poor indicators of job performance, but in many cases they aren’t even accurate. The Federal Trade Commission (FTC) reported in 2013 that as many as 1 in 5 consumers could identify at least one error in their credit reports. That’s compounded by the difficulty in correcting errors—not only are consumers often unaware an error exists in the first place, but credit reporting agencies can be frustratingly slow to respond when it comes to fixing those mistakes.
This means that one in five job-seekers could be rejected by an employer because their credit report lists a medical debt in default—even when they’ve paid off the debt in full and on time.
This is why we introduced the Equal Employment for All Act. It would help level the playing field for hardworking families who deserve a fair shake. Our legislation would prohibit employers from requiring prospective employees to disclose their credit history as part of the job application process, unless the position requires a national security clearance or a credit report is required under state or local law. It makes sure that hiring decisions are based on an individual’s skill and experience—not on past financial struggles. The bill also would stop discrimination against African Americans, Latinos and seniors who are more likely to be hit by bad credit.
This is an issue of basic fairness. Americans should be able to compete for jobs on their merits, not on whether they have enough money to pay all their bills. Much of America—hard-working, bill-paying America—has damaged credit. It is wrong to shut them out of the job market.
This is one more way the game is rigged. A wealthy person who loses a job, gets divorced or faces a family illness is unlikely to get tangled up in debt or suffer from bad credit. But for millions of working families, a hard personal blow often turns into a hard financial blow with repercussions that follow the family for years.
No one should be denied the chance to compete for a job because of a credit report that bears no relationship to job performance and that can be riddled with inaccuracies. Our Equal Employment for All Act would make sure all hardworking Americans have a real shot to get back into the workforce and back on their feet.
This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.
More on Credit Reports & Credit Scores:
- How Do I Dispute an Error on My Credit Report?
- What’s a Bad Credit Score?
- How Credit Impacts Your Day-to-Day Life
Images courtesy Sen. Elizabeth Warren & Rep. Steve Cohen