LOS ANGELES — Dan Denton is stuck in a vicious cycle: He's behind on his bills after losing his job. But lousy credit is spoiling his chances of finding new employment.

Recruiters from a St. Louis-based investment company recently rescinded an offer after looking at his credit history, which has been mauled by overdue card payments and an impending foreclosure on his house. He and his wife, Dana, filed for bankruptcy protection in June to try to hang on to their home.

"Of course your credit's going to look bad when you've been unemployed for months," said Denton, 60, a former fundraiser for the Crystal Cathedral in Garden Grove. "But what relevance does that have on your performance?"

The credit report is becoming the latest hurdle for the unemployed in a dismal U.S. job market. Up to half of all employers use credit screening to weed out potentially troublesome hires, although estimates vary, and the practice is on the rise.

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

Mary M. Massad, managing director of screening services for personnel management company Administaff Inc., said credit checks help companies hire "the highest-quality individuals."

"It's ... about being proactive in order to avoid trouble down the line," she said. "Companies ... want an insight into how an individual conducts their own life, because that's typically how they're going to conduct business."

Screening employment prospects this way is legal in most of the country as long as it is disclosed to applicants, who must give permission for a credit check to be run.

But some experts said that there's no clear link between credit history and job performance and that the reports don't paint a complete picture, omitting details about divorces, medical bills or even identity theft.

Nancy Novak said that when prospective employers check her credit history, they see a mountain of debt and late payments, including $30,000 in credit card bills. What's not evident, she said, is that she accumulated most of it in a failed effort to keep her small business afloat.

A former furniture broker in Southern California, she has been unemployed for two years, sending out hundreds of resumes to no avail. She said about a third of those employers have asked her permission to run a credit check. It's information she rather would not volunteer. Still, she always says yes, figuring companies will reject her outright if she doesn't cooperate.

Novak, who recently mov- ed into her parents' home, said she wasn't sure if her credit problems alone have cost her employment. But she resents the notion that a checkered report flags her as a potential thief.

"Give me a break — I don't have a criminal record," said Novak, 57. "My expense reports are going to be squeaky clean. I'm not going to do anything to turn over the apple cart."

Many employers aren't willing to take that chance.

Companies and organizations lose a median of 5 percent of their annual revenue — billions annually — to employee fraud, according to the Association of Certified Fraud Examiners. Asset misappropriations, including skimming from the till, pilfering equipment and the like, account for 90 percent of all cases.

Most companies pull reports produced for them by one of the major credit bureaus. Federal law permits employers to see if job prospects are paying their mortgages, credit cards and other bills on time.

But they can't see applicants' overall credit scores, and they must notify candidates if they were rejected because of their credit.

But some companies bury the initial credit-search request — usually just a signature line — inside a hefty application, so that job seekers frequently aren't aware they're granting permission, said Adam T. Klein, an employment attorney with Outten & Golden in New York. He said companies often don't inform prospects if their lousy credit was what got them rejected.

"And so you have sort of a hidden problem," Klein said, "a very clear pattern of using credit score and credit history for employment suitability (and) almost no information available to the applicant who was denied employment based on that."

He and others question the usefulness of such reports. There's no clear correlation between credit history and job performance, according to a 2003 study by Eastern Kentucky University. And the dossiers are prone to errors. More than one-third of companies surveyed by the Society for Human Resource Management in 2004 said that they found inaccuracies in the credit histories they pulled on job prospects.

"As an employer, you may be shooting yourself in the foot," said Deb Cohen, chief knowledge officer at the industry group.

Connecticut, Hawai'i and New York have bills in play in their state legislatures that would restrict pre-employment credit checks. Employer groups in those states aren't happy.

But to desperate applicants, a blemished credit check can mean the difference between continued struggle and a job offer.

A year ago, Denton had a solid credit score above 700, according to old Experian reports. But now, for the first time, he and his spouse are out of work.

Their Menifee, Calif., home plunged $250,000 in value. They're preparing to move into a trailer and are living on less than $1,000 a month in jobless benefits.

"You think there's no chance of being out of work more than a month," Denton said. "But as it drags on, we're just completely in the bunker."