It Bears Repeating

In this story in Sunday’s online Los Angeles Times, the writer reveals that employers are now turning to using credit reports in ever greater frequency as a tool when making hiring decisions. (The story is called “Trapped: It’s Hard to Get a Job if Your Credit Is Bad” by Tiffany Hsu 6/6/09 just in case the link doesn’t work.  Which I don’t think it does).

A lot of people find themselves in a Catch-22 because of this.  It works like this: They’ve lost their jobs.  They can’t keep up with their bills.  Their credit-rating is adversely affected.  They are just about to be hired for a new job - hooray! Salvation is just around the corner.  Oops.  Not so fast.  They don’t get the job because their credit is so bad. Because they couldn’t pay their bills.  Because they lost their job and they didn’t save too much while they were working to have money to pay the bills in the event they ever got laid off.  Ooooooh, the fearful symmetry!

One of the people they use as an example of this sorry state of things is a man who lost his job as a fundraiser for the Crystal Cathedral.  Dan Denton has been out of work for a few months now and his savings only lasted three months.  Just when he thought he was on the rebound, a  job offer was rescinded when his sorry credit-rating was discovered. His credit is lousy because he only had three months worth of savings.

From the picture accompanying the article, it appears that Mr. and Mrs. Denton are at least in their early ’50’s.  To only have three months worth of savings at that point in life is just terrible. That is so sad!

I’m reading between the lines here, but it seems that (once again) credit card debt was a big problem for this poor couple. If they didn’t have the credit card debt, they could have probably stretched that small savings a lot further. Maybe kept their credit rating, and their heads, above water just until that next job offer came along.

The fact is, though, that companies that are hiring can afford to be a lot choosier about who they hire these days.  There is a large pool of unemployed people out there from which to select.  Here is Employers’ rational for using credit ratings as a hiring criteria:

” ‘Money woes could signal disorder in an individual’s personal life that could translate into slipshod work habits, some staffing experts said. Companies lose billions annually to employee theft. A sterling credit history, they said, points to a worker who is more likely to be disciplined, trustworthy and reliable.’ ”

Now, this may not be fair, or even true on an individual-by-individual basis.  But it is how the companies that are hiring are thinking right now.  That is just the way it is, unfortunately.

So it bears repeating:

Step 1: Save that emergency fund.  6-8 months, minimum! Be HONEST! That means - honestly figure out how much money is spent every month.  This can be a hair-raising experience but it must be done. This includes monthly debt payments. Remember - your debts don’t go away just because your job does.

I think if I was in this situation (with massive credit card debt), I would only make minimum payments until I had this cushion saved.  That seems to make the best sense to me in today’s economic climate.  Then I would move on to two.

Step 2: Get out of debt, and stay out!  However, if you are in debt and get laid off, you have hopefully insulated yourself against credit destroying non-payment by completing Step 1 with HONESTY!

Now Mr. and Mrs. Denton are being forced to learn how to live on $1000.00 a month unemployment benefits.  They are learning the hard way.