Can my employer use my credit report to decide whether to promote me to management?

Question:

A couple of my coworkers and I are being considered for a promotion to the manager our department (our current manager is retiring soon). As part of the selection process, the HR department asked all of us to sign a written consent form, authorizing the company to pull our credit reports. My husband's business went under a few years ago, and our joint finances are kind of a mess. I'd rather keep this whole situation private; anyway, I don't see what it has to do with my job. Can they use my credit report in making promotion decisions?

Answer:

Up until quite recently, the answer to your question was a resounding "yes." No law prohibited employers from using employee credit records in making job decisions, including deciding whether to hire or promote employees.

However, the recession that began in 2008 has changed that, at least in some states. The snowball effect of tightening credit, unemployment, foreclosures, and loan defaults resulted in damaged credit scores and credit reports for many Americans. Lawmakers in some states began to see the unfairness in allowing employers to refuse to hire employees because of poor credit. Without a regular paycheck, it's tough to climb out of a financial hole.

The federal Fair Credit Reporting Act (FCRA) lays out the rules that an employer must follow when checking credit reports for employees and applicants. One such rule requires employers to obtain the written consent of the employee or applicant before running a credit check. Also, if an employer decides to take "adverse action" based on the report (such as denying a promotion), it must give notice to the employee. However, beyond these notice and consent procedures, the FCRA does not put any limits on how an employer may use the employee's credit report.

State lawmakers have stepped into the breach. In at least ten states, the law limits when and how an employer may use an applicant's or employee's credit report. In most of these states, the law bans employer use of credit reports, except for certain positions or situations. In California, for example, an employer may consider credit reports in selecting employees for managerial positions. In Oregon, however, a private employer that is not a federally insured bank or credit union may consider credit reports only if credit information is "substantially related" to the job.

To find out whether your state has such a law (and what it requires), select it from the list at State Laws on Employer Use of Credit Reports. You can find frequently updated information at the website of the National Conference of State Legislatures page, Use of Credit Information in Employment.

If your state doesn't limit your employer's right to use credit information in making job decisions, don't give up. Be prepared to explain why your credit report has a few dings and make it clear that your husband's financial woes have no effect on your ability to do the managerial job. Hopefully, the decision makers at your company will understand that the failure of your husband's business is unrelated to your managerial skills.

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