Over the weekend, a new law went into effect in New York State limiting employers from using credit history to make hiring or job decisions, like compensation.
Now, more than 10 states have such laws on the books.
When employers look at credit checks, Julie Schweber at the Society for Human Resource Management, or SHRM, said they’re looking for a few key things.
“Do they pay on time? Do they have account balances? Have they declared bankruptcy?” Schweber said. “We’re looking from an employer lens. ‘Gee, is this person able to handle money skillfully? Do they have a, demonstrate an overall sense of reliability?’”
Though Barbara Kiviat, an assistant professor in Columbia University’s Department of Sociology, said the employers she’s interviewed mentioned another reason, too.
“It helps them prove to other sorts of stakeholders, regulators, investors, insurers, that they’re doing their due diligence in screening their employees,” Kiviat said.
Some states have limited the use of credit histories in employment decisions because of the concern that having bad credit can make it hard to get a job.
Leora Friedberg at the University of Virginia studied the effects of the laws on people experiencing financial distress, which she said is correlated with credit history.
“They have shorter time in unemployment, they get a job sooner, and, actually, we find that the quality of the job they get seems to be better,” Friedberg said.
That means higher pay. And, Friedberg said, they stay in that job longer, too.
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