Credit checks: A civil-rights issue?

By Christian Science Monitor

Lisa Bailey worked for five months at Harvard University as a temp entering donations into a database. When the university made the job a salaried position, Bailey, who is black, saw a chance to lift herself out of dead-end jobs.

Bailey's superiors encouraged her to apply, she says, but turned her down after discovering her bad credit history.

Bailey, with her lawyer, has lodged a complaint against Harvard charging racial discrimination. The reason: Studies indicate that minorities are more likely to have bad credit, but credit problems have not been shown to negatively affect job performance.

Some privacy and minority advocates are now seeing credit as a civil-rights issue as minorities start to fight employers and insurers who base decisions on credit histories. Their effort could slow the near doubling in credit checks by employers in the past decade, which affects millions of Americans who are struggling with debt.

"It's definitely a civil-rights issue because of the growing use of credit reports and credit scores for hiring, renting an apartment, insurance and the fact that people of color have not been integrated into the credit-scoring system as much as traditional white middle-class America," says Evan Hendricks, the author of "Credit Scores & Credit Reports: How the System Really Works, What You Can Do."

In a 2004 study involving 2 million people, the Texas Department of Insurance said blacks had an average credit score roughly 10% to 35% worse than whites; Hispanics had scores 5% to 25% worse than whites.

Credit checks are a growing factor in hiring, with 35% of employers checking applicants' credit in 2003, up from 19% in 1996, according to the Society of Human Resource Management, an association for human-resource managers. Typically, credit reports are done if a person is going to deal with money, says John Dooney, a manager of strategic research for the association.

A case for considering credit

Employers should look at credit only for jobs in which the information is relevant, says Lester Rosen, the president of Employment Screening Resources, a national background-screening firm in California. He cites a few examples:

• For jobs handling money, people may have a motive to steal if their debts surpass their salaries.
• For jobs requiring travel, bad credit could bar applicants from renting cars or buying tickets.
• For jobs managing money, a credit report can offer clues on how applicants manage their own.

Particularly in that last scenario, Rosen cautions employers to be circumspect because blemishes might be errors or beyond an applicant's control, such as sudden medical expenses. Legally, employers must receive written permission from applicants to do a credit check and must give those denied because of credit a chance to respond.

Rosen defends the careful consideration of credit in the hiring process. "If Harvard hired a person and did not use a credit report and the person embezzled, what would the headline be?" he asks.

So far, there's a lack of data supporting a relationship between bad credit and theft by employees. In perhaps the only study published on the subject, Jerry Palmer and Laura Koppes of Eastern Kentucky University in Richmond in 2003 found no correlation between employee credit reports and negative performance or termination for dishonesty.

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