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Why should we rethink credit checks for job applicants

By on February 3, 2022 0

Like many funders, the California Wellness Foundation strives to prioritize diversity, equity, and inclusion. We view our DEI efforts as a journey and continually seek opportunities to improve ourselves and better represent the communities we serve. Sometimes, however, we are wrong and realize how long our journey will be.

For example, in the fall of 2020, we advertised a job opening for a Program Director and received a massive response from qualified and diverse applicants. Our HR department’s focus on skills versus credentials and improving awareness had worked; we were excited.

But then we received an email from someone who declined to apply because the process included a credit check – our common practice at the time when hiring for management positions – which, she said, questioned our commitment to DCI.

She explained that her credit rating was low in part due to bankruptcy caused by medical debt. As a black woman with a graduate degree, she expressed disappointment that this temporary situation overshadowed her academic and professional qualifications and lived experiences.

Despite his accomplishments, we then realized that a lack of wealth and a low credit score were hampering his career and, perversely, limiting job opportunities that could allow him to raise his credit score.

His comments hurt, but his honesty and direct challenge caused us to rethink our practices. We got together to discuss our policy and the perceived value of a high credit score. The standard thought is that a low score can indicate poor judgment, financial desperation, or the risk of someone stealing or embezzling funds. Yet the actual results appear to contradict these warnings.

Eric Rosenberg of consumer credit reporting giant TransUnion admits the company doesn’t have “research to show a statistical correlation between what’s on a person’s credit report and their job performance. or its likelihood of committing fraud”.

Plus, we’ve easily put together a list of reasons why someone might have a low credit score: divorce, layoff, child care costs, doctor bills, and other adverse events. We understand that these disruptions have a greater impact on women, people of color, people with disabilities and people with low incomes. We even discovered that some of our current top performers were asked about their credit history before they were hired.

Positive change on the horizon

The practice of including good credit as a qualification for employment may be on the decline. In California, for example, credit checks can only be performed on applicants for management positions or jobs involving certain types of financial data and transactions. At least 10 states now restrict the practice, and the Equal Employment Opportunity Commission has won lawsuits against employers who use credit checks to disproportionately disqualify people of color for jobs.

The main causes of bankruptcy and low credit scores are medical debt and job loss, especially during the Covid-19 recession. These causes do not represent moral or ethical failings; nor do they indicate a higher risk of criminal behavior. They represent people struggling to move up the economic ladder. Denying them access to jobs is wrong, and it robs nonprofits of the diversity we cherish and the talent we need.

Charities are responsible for to be the change we want to see in the world, and foundations should lead the charge to stop using credit as a criteria for hiring. Credit scores do not convey a person’s history or potential, their gifts, the obstacles they have overcome or the risks they may pose.

Using credit checks to manage risk can even serve as a hedge to perpetuate discrimination and exclusion. The think tank Demos studied the practice and published the report “Discredited: How employment credit checks keep skilled workers out of jobswhich concludes that making hiring decisions based on credit data reproduces and propagates racial inequality and hinders economic fairness.

Restricting the pool of applicants to those with good credit scores is unfair to job seekers and a betrayal of our missions. With the support of our Board of Directors, we have stopped using credit checks as part of the hiring process.

We are confident that this decision will not increase our risk, but will expand our pool of candidates and fulfill our commitment to advancing the health, safety and resilience of the communities we serve. We are grateful that someone had the courage to hold us to account and show us the next step in our DEI journey. We hope you will join us.