Credit Checks and Employment Screening

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A common question among employers conducting routine employment background screenings on potential new hires relates to credit checks. Yes, credit checks are one type of background check that can be conducted on job applicants. Your background screening vendor likely includes them as a possible screening option. But should credit checks be part of your screening process? 

The answer is generally no. Here’s why.

Credit Reports are Subjective

When you request a credit check on an individual, you’ll receive a report that includes data such as the following:

  • Number of open lines of credit 
  • Mortgage info
  • Auto loans
  • Credit cards and balances
  • Amounts owed on open credit lines
  • Late payment details
  • Bankruptcy filings within the past 10 years

The questions we need to ask are these: 

  • What does any of this information tell us about an individual’s ability to perform their job?
  • What conclusions can you safely and reliably draw from any of this information?

Answering these questions quickly shed light on why credit checks are not particularly useful in making employment decisions. While you might be able to draw conclusions about the consumer habits of the individual, the credit report does not tell you the whole story nor does it provide any info about the person that helps you determine whether or not they are fit for the position. There are a handful of exceptions to this, but by and large, any assumptions an employer makes based on a credit report will be subjective and irrelevant. 

FCRA Rules

The Fair Credit Reporting Act, the law that governs the use of personal consumer information for hiring purposes, states that it is illegal to discriminate on the basis of a prior bankruptcy. So, if the credit report uncovers a bankruptcy in the applicant’s history, you aren’t allowed to consider that when making your hiring decision. Since you can’t use it, where’s the value in knowing it? 

The Big Stuff Will Usually Appear in the Criminal Record Check

If the position you’re hiring for has responsibilities over money or other valuable fungible assets, what you care about is if the candidate can be trusted in that position. To that end, a criminal record check will reveal any history of theft, bribery, or embezzlement that would indicate a potential problem. You don’t need a credit check to find these issues. 

Credit Checks are Illegal in Many Places

There are a number of states and cities across the country that have banned the use of credit checks for employment screening. Check carefully with your legal counsel before using credit checks in your hiring process. 

When Do You Need One?

All that said, some positions require a credit check. Examples include:

  • Financial services
  • Accounting
  • Upper management
  • Industry mandated jobs such as law enforcement
  • Bank tellers

These roles require a high level of trust and involve fiduciary responsibility. A credit report will help you understand if there’s anything in the candidate’s credit history that might indicate a potential for mishandling funds. 

The Bottom Line

Employee background checks are important. Talk to your legal counsel and your background check provider about if and when to use credit checks.

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