NEW YORK (CNNMoney) -- A federal bill announced Tuesday would prevent employers from denying job applicants based on their credit.
Massachusetts Senator Elizabeth Warren proposed the Equal Employment for All Act with six other senators. Under the bill, employers would no longer be able to require prospective employees to go through a credit check or reject them due to negative information in a credit report.
Such practices have become common among businesses. A report released this year from liberal think-tank Demos found that one in ten unemployed Americans have been denied a job due to information in their credit reports. And these checks are conducted for all kinds of positions -- from entry level to senior management.
Bad credit can be a result of many factors, but one of the most common reasons is the loss of a job and subsequently, health insurance -- which makes it difficult to keep up with the bills, Demos found.
Warren, along with other advocates of the bill, say that employer credit checks are therefore keeping many people out of the labor market who need jobs the most. In addition, there's no proof that a person's credit has any correlation with job performance, and these checks have also been shown to unfairly impact certain groups of people -- including women, minorities, students and seniors.
"There's little or no evidence of any correlation between job performance and a credit [report]," Warren said on a call with reporters. "[T]his is a point of basic fairness ... people who get hit with hard economic blows end up getting squeezed out of the system. This is another way the game is rigged against hardworking middle-class families."
Errors in credit reports are also common, potentially leading to unfair hiring decisions based on incorrect information. A recent Federal Trade Commission study found that one in five consumers has an error in their credit report.
The bill provides an exemption, however, for government jobs that require employees to have national security clearances.
More than 50 advocacy groups signed a letter Tuesday urging senators nationwide to cosponsor the Equal Employment for All Act, including the NAACP and the Leadership Conference on Civil and Human Rights.
"Discriminatory credit checks are bad for employers, they're bad for job seekers, and they're bad for our economy. In order to have an inclusive recovery where all Americans have a chance to take part, Congress must pass the Equal Employment for All Act," said Nancy Zirkin, executive vice president of The Leadership Conference on Civil and Human Rights.