Are Credit Checks an Effective Pre-Employment Screening Technique?

No. According to Time Magazine, 70% of undergrads and 96% of graduate students carry a card credit while only 10% pay their bill on-time each month. College debt is a loaming issue for students who can’t afford to pay in cash for their education. Having enough cash to keep up is something that most college students struggle with on a yearly basis. Some will get jobs, others will mooch off their trust fund (if they’re lucky!), but the majority of students will use credit cards.

Financial literacy is important for college students because it can affect your life post-graduation. Credit checks by employers are up 6% over last year to 21% according to a 2011 report by EmployeeScreenIQ. No longer can college students get away with bad debt while in college. In the real world there are more obstacles to jump through when applying for jobs. First, you must get the interview. If you’re lucky enough to score a second interview and finally the offer, you get to be subject to all kinds of checks. Background checks. Reference checks. And the looming…Credit Check.

Is that fair?

Most job seekers would tend to disagree with the use of a credit check as a way to determine if you’re fit for a job. There are multiple reasons your credit could be subpar aside from missing a payment here and there such as divorce, closing an account, using up to 80% of your credit line, and sometimes even renting a vehicle. So should this stop me from getting a job? I don’t think so.

I understand the motive behind the credit check. Most employers are looking for reliable candidates that won’t lie, cheat, or steal from the company, but a weak credit score doesn’t necessarily reflect the candidate. Here is a list of a few reasons why I think credit checks should be barred in all fifty states when it comes to pre-screening employees:

Weak credit reflects weak economy—not lack of responsibility.

With unemployment at one of its highest in decades those who are losing their jobs and unable to make ends meat are being effected twice as much. According to Money News there are now about 42.2 million Americans who have poor credit scores. Either by downsizing or businesses closing, people are losing their jobs at a faster rate than every before. Should we penalize these people who are put in this awful situation? I think there are better ways to determine if someone is qualified for a job.

Credit issues don’t equal higher rate of theft.

One of the most notable reasons employers require credit checks in employment screenings is to protect the company front future embezzlement or to heed of any criminal activity. In 2010, a spokesman for TransUnion told a group of Oregon legislators “At this point we don’t have any research to show any statistical correlation between what’s in somebody’s credit report and their job performance or their likelihood to commit fraud.”

If that is the case, why do the numbers of companies put any weight into credit checks? The Society for Human Resource Management reports that only 9% of companies look at favorable credit reports as an influential part of their decision to hire someone. If only 9% find it influential, why the privacy invasion?

Other alternatives should be utilized to avoid privacy invasion.

Let’s face it. We don’t want people knowing our business. If you come into work, excel your my job, but come home to some financial trouble, you don’t want your boss, HR, or others to know about it. If you have problems at home and they stay at home why would you need to disclose? There is no evidence to suggest that bad credit scores effect performance. There are superior methods out there such as better interviewing techniques, job competencies, and personality tests.

So stop.

If you want to prevent theft, try working on company culture and values aside from discriminating based on credit scores. Does your company utilize credit checks as a part of pre-employment screening? Do you agree or disagree? Let us know!

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Comments

  1. I like this article. I had a really hard time finding a job while I had bad credit. Unfortunately its just sort of the nature of the beast, no matter how bad it it. If I were to offer any advice to people who are in the position I used to be in it would be to just get your credit fixed. I used Lexington Law and was really impressed… they did wonders for me. I hope this helps.

    Reply
  2. Thanks for posting a link to our survey Blake. In what I personally believe is a good development, we have actually seen the number of requests for credit reports decline in the past year. There are still jobs that require them such as those in the financial services or banking industries or for those whose job responsibilities include access to financial records, large amounts of cash, etc., but many employers have taken a hard look at when they should be used.

    Reply
  3. Sometimes companies must conduct credit checks to maintain federal compliance with the Violent Crime Control and Law Enforcement Act of 1994, which generally prohibits individuals who have been convicted of a felony involving breach of trust from working in the business of insurance, unless they have received written consent from state regulators.

    Reply
  4. This article is mostly accurate, but also takes too narrow of a view at employer credit reviews. For the most part, I agree that credit scores is not a reliable credibility test for applicants. However, employer credit checks do not reveal a score. They reveal the credit history. There is a huge difference between simply looking at a score versus looking at a credit history and using discernment to determine if there is a pattern of irresponsibility. This becomes quite relevant for certain positions, such as those that include fund raising, accounting, or banking. After all, would it be wise to hire someone to manage the finances of others, when they have not demonstrated the ability to manage their own?

    John Beck |
    Reply
  5. Max — I completely agree with you! There are ways to start fixing your credit and numerous programs out there to help. Working on fixing credit may or may not help in determining if you’ll get a job you currently applied for or not.

    Nick — That’s good to hear. Regardless of what information is shown on a credit report, I don’t think its a suitable deterrent of someones qualifications. Even in the banking industry because things such as divorce can get someone in extreme financial hardship.

    SLS — Wouldn’t that same information come back from a background check? In that case I don’t see the need for an actual credit check.

    John — While I agree to some degree that jobs in the banking industry should have some type of accountability, credit history doesn’t always give a good indication as to why their credit is messed up. Also, what happens when something happened when you were 19 and in college and now you’re 25 and you’ve gotten your life back on track, but can’t get a job because of a mistake you’ve made 6 years ago? That type of information stays with you a long time. Sometimes it can take years to fix past mistakes.

    Reply
  6. I don’t think it’s just as simple as “bad credit” – companies in some industries use the credit checks to look for extreme circumstances. And, if you check one person, you have to be consistent across the board. I think that if someone has had multiple bankruptcies and foreclosures on their credit history, yet wants to work in banking, financial services, insurance, advising service, they wouldn’t really be a good fit … would they? That’s very different that not paying off your credit cards on time. I think employers use credit checks to weed out the few, not the many. Just having bad credit isn’t necessarily a deal breaker, in my experience as an HR practitioner.

    Reply
    • Agree with you SLS and further to that, delving into the Credit Report with the candidate helps the employer gather some background on them as a person and potential employee. A poor credit is NOT a deal breaker in my opinion unless the explanations as to what got them in the pickle they may be in don’t add up.
      Conversely, I don’t want anyone who can’t manage their money, managing mine. Some positions simply don’t lend to having a person with a history of poor money handling at the helm.

      Reply
  7. I agree with Max. Lexington really helped out a friend of mine a ton. He raves about them. I would probably go that route.

    Reply
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