Bad Credit Keeps College Graduates Unemployed

Discussion of the rising number of college graduates who are woefully unemployed isn’t new. In fact, the rate of college graduates unable to secure a job is higher than it has ever been in the 61 years since the Labor Department began keeping track. For as long as the country has had to come to grips with college graduates scraping by working several jobs at once or moving home to save money under the roof of their parents, the crunch isn’t being limited to community colleges or states schools. Even Ivy League institutions, like Harvard, are boasting graduating classes in which only 30% have successfully found employment by commencement.

While the usual discussion seeking to find the causation invariably blames a languishing economy and shifting market policies, another suspect is emerging: credit.

“These days, you need credit for everything,” Melissa Smith (name changed to protect privacy), a graduate from Kansas, says. “Even a job, and that’s what is so scary. Nobody told me anything about how important credit was, and now, I’m regretting it.”

Smith is just one of many college graduates beginning to realize how much her credit is impacting her life. But her experience is somewhat unique. Shortly after the start of her freshman year, overwhelmed by the pressures of a double major at a competitive university and living away from home, she sunk into a deep depression. Smith attempted to commit suicide, only to be interrupted by her roommate, who called 911. She was kept in the hospital for 72 hours (the mandatory time under most state mental health laws), and an additional five days after that.

Once she was released from the hospital, she withdrew for the rest of the semester, but returned at the start of the following year. It was around that same time she started receiving bills for her hospital stay. She admits she wasn’t worried about paying the bill, believing her insurance would get around to fixing what was “obviously a clerical error.” But the insurance never would, because she didn’t have it. Smith, as it turns out, is just one of countless college students who mistakenly believes that they have insurance coverage provided by their parents’ policies. Prior to the announcement earlier this summer that insurance companies will bring about an end to rescission practices, hundreds of thousands of folks have had the mistaken impression that they have medical insurance when, in actuality, they don’t have any coverage at all. Smith wouldn’t learn the truth for several years.

Now 25, Smith graduated college two years ago, but has yet to secure a job in her chosen field. Eventually, she landed an interview with an impressive company that seemed enthusiastic about hiring her. They told her during the interview process she would be subject to a credit check.

“I really thought I was going to get this job,” she says. “The interviewer and I had good chemistry. She liked my answers and my resume. Then, I didn’t get the job.” When the interviewer called back, although she didn’t outright blame Smith’s credit, she indicated that the report had been a factor.

WHAT YOU DON’T KNOW CAN HURT YOU

Smith didn’t understand what could be hurting her credit. As far as she knew, she didn’t even have any because she had never taken out a loan or had a credit card. Curious to learn what her credit report contained, she learned that Americans are entitled to one free copy of their credit report every year–courtesy of the Fair Credit Reporting Act. There, Smith saw a lengthy accounting of her medical bills, still hurting her credit almost seven years later.

“The first thing I did was sit down and cry,” she says. “Nobody ever taught me about credit, or told me how one snap decision can completely ruin your life. I can’t get approved for a credit card. I can’t buy a car. I can’t even get a job.”

Smith isn’t alone. While medical bills devastated her credit, many of her peers are struggling to stay afloat under crushing debt.

Such was the case for Casey Temple, also a graduate of Kansas. Temple took out both student loans and credit cards during her five years of college education. She started using the credit cards for small purchases, but then relied on them to pay more and more of her daily living costs. When she graduated, her credit card debt alone exceeded $15,000.

“Really, I just didn’t know any better,” she says. “I thought it was the greatest thing in the world. I could buy all this stuff and never pay.”

At first, the interest rates were low. Then, about a year and a half ago, Temple noticed her interest rates climbing up. Over night, Temple’s minimum balance tripled, and she began missing payments. She also pulled her credit, and found it had dropped almost 100 points  in two years because of her debt. Like Smith, Temple has been unable to secure even a menial job.

“I have no doubt it’s because of my credit,” Temple says. “I’m a good employee. I have great references. But I can’t get a job because any employer who sees my credit report will think I’m the most irresponsible person ever.”

Temple’s experience is more common. In six years, the average debt for college students has risen $18,650 in 2004 to $23,200 in 2008. Propelled by the credit squeeze that began in 2008 and the abrupt economic downturn, more college graduates are relying on their credit cards to survive while job hunting.

NEED A JOB TO GET A JOB

The end result is a vicious cycle. Today’s college graduates come out of the gate carrying more debt than the generations before them, due in no small part to the average college experience taking five and a half years instead of the traditional four. This extension in education (and, by proxy, financial assistance) can rack up an additional $23,000 per semester, depending on which college the student is attending. Because they start out with higher debt and have more of it, today’s graduates are also less equipped to get out of it, making jobs even harder to come by.

“It is true that having a bad credit rating can impact a person’s ability to get a job,” Lynnette Khalfani-Cox writes on her blog, TheMoneyCoach. “Employers are increasingly pulling people’s credit reports before offering jobs … or in some cases, they’ll check a person’s credit after a job offer has been made. If the individual has poor credit, that job offer may be rescinded.”

Nearly one-third of all prospective employers run credit checks on their potential employees at some point during the application process. And while many types of discrimination are legally prohibited during the hiring process, no legal provision is in place to protect individuals with bad credit from being dismissed from the job applicant pool. It’s a decision that makes little sense.

“But what about a coffee shop? A health clinic? A supermarket? The Transportation Security Administration, which rejects airport screener applicants if they are more than $5,000 in debt?” Charlotte Hill of Change.org writes April 15. “These types of businesses, which don’t deal directly with money or high-priced goods, shouldn’t be allowed to discriminate against potential employees because they have marks on their credit reports.”

Both Smith and Temple believe that, had they made different choices regarding their credit, they would be gainfully employed by now.

“It’s bad enough that I’m afraid to apply to Target,” Smith says. “because I read that even places like Target and Wal-Mart are checking your credit now and using that to decide whether or not to hire you. A convicted child molester out on parole as a better chance of finding a job than I do. I have a four-year degree and I can’t even get a job as a cashier.”

There’s only minimal federal legislation to protect job applicants from this unfair process, even while other marginalizing processes are prohibited. There’s also little doubt that the increase in strict scrutiny during the application process unfairly rewards the rich while penalizing the poor, who have been disproportionately impacted by the economic meltdown of the last four years. Some hope is on the horizon — Change.org reports that several states are filling in the gaps, passing bills that reign in unwanted credit checks. Washington, Oregon and Hawaii have all mandated that employers only review applicants’ credit histories when doing so is essential to the job position.

Until more states take action, it’s doubtless that Smith and Temple’s stories will continue to reflect the majority.

Do you think employers should be able to use credit as a determining factor in hiring someone? Weigh in!

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