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New York City Council Passes Ban on Credit Checks for Employment

May 1, 2015
Credit Cards
New York City Council Passes Ban on Credit Checks for Employment
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In today’s job market, asking for a prospective employee’s credit record has become standard practice, and having a few dings on your report can mean not getting the job. But for some New Yorkers, this practice may be coming to an end.

Credit check prohibition in job screenings

The New York City Council passed a bill in mid-April that in most situations would ban employers there from checking job seekers’ credit history and asking for their credit score during a job interview. The legislation, similar to that passed in California, Connecticut and Washington as well as other places, comes amid a growing belief that credit history does not reflect a person’s character or predict his or her success as an employee. Some critics claim that such requests discriminate against low-income and minority applicants, prolonging unemployment and further damaging credit.

Exceptions to the legislation

The bill, which is awaiting the mayor’s expected signature, excludes a handful of jobs for which employers can still request a credit check. Among them: positions in law enforcement, jobs that demand state or local security clearance, and jobs that require employees to evaluate credit. (Details vary among the laws in various jurisdictions, so we recommend consulting your state’s website to see whether a job is exempt.)

Here is a list of states and cities where legislation limiting pre-employment credit screening exists:

  • California
  • Colorado
  • Connecticut
  • Delaware
  • Hawaii
  • Illinois
  • Maryland
  • Nevada
  • Oregon
  • Vermont
  • Washington
  • New York City

What if your state does allow pre-employment credit checks?

The vast majority of states do allow this practice, though, so if you’re applying in one of them you may have your credit report checked. This is a big part of why doing your best to have good credit is always key. Here are a few tips on how to accomplish just that:

1. Use credit

If you have no credit activity at all, employers will have no existing basis from which to evaluate employment eligibility. This can be as limiting as having bad credit. To build credit from square one consider applying for a secured credit card or try to become an authorized user on a family member’s card. Just make sure you’re using an issuer that reports to the credit bureaus. Otherwise, your credit will remain unaffected.

2. Make payments on time

Paying your bills on time is undoubtedly the most important component to both building and maintaining good credit. Your FICO score is determined from five credit related components, but payment history carries the most weight individually. Setting a monthly bill payment reminder is an easy way to never miss a payment cycle, and subsequently improve your credit.

3. Don’t use too much credit

Carrying too much debt at any given time can damage your credit score, and should therefore be avoided. FICO’s scoring system also relies heavily on the amount of debt people owe in relation to how much credit they have available, and using a higher percentage will usually lower your score. To be safe, most personal finance experts recommend keeping your credit utilization ratio below 30% overall. Paying your balance in full every month is usually a good way to stay well below that threshold.

Even if a pre-employment credit check isn’t in your near future, having good credit is still vital when applying for loans, credit cards and even some forms of insurance. Spend wisely and check your credit score often to be sure you’re on the right path to credit success.

Kevin Cash is a staff writer covering personal finance for NerdWallet. Follow him on Twitter @kevin_cash and on Google+.

Image via iStock.