Employer Use of Credit Reports Under Fire

By Bill Hardekopf of LowCards.com

The unemployment rate was 9.6% in September, meaning government data show a total of 14.8 million people were unemployed last month, with 41.7% of those out of work for six months or more. Good jobs are hard to find, and may be nearly impossible if you have bad credit.

Employers are increasingly turning to credit reports to help screen applicants who may be unreliable or a theft risk. Many states question the fairness of using credit reports to judge someone's job qualifications, though, and the House has proposed a bill prohibiting it.

Why employers use credit checks
Fraud is a high cost of business. The median fraud loss for U.S. companies is $160,000, according to the Association of Certified Fraud Examiners' 2010 Global Fraud Study. The study found that two common warning signs for employees who commit workplace fraud are having difficulty meeting financial obligations and living beyond their means. It also said these signs cannot be detected by traditional methods.

According to a recent survey from the Society for Human Resource Management, 60% of employers use a credit check during some stage of the interview process, and 65% of large businesses; 13% reported conducting credit background checks on all applicants. Forty-seven percent of employers who do credit checks do them on select job candidates.

The majority of businesses who do credit checks run them after a contingent job offer and allow job candidates to explain their credit results before the hiring decision is made.

According to the survey, only specific credit information affects hiring decisions, with pending debt lawsuits and accounts in debt collection being the biggest red flags. Very few consider home foreclosures and past medical debt when making an employment decision.