Employer Credit Checks May Soon Be Illegal

Here’s the bad news: A majority of employers pull credit reports of prospective employees during the interview process. According to a survey conducted by the Society of Human Resource Management , 60% of employers admitted to screening an applicant’s credit before filling some of their openings.

The good news is that the cycle may not continue for much longer. Many states and even the federal government are taking steps to ensure that a candidate’s bad credit report isn’t issued to evaluate a prospective employee, especially since the report was never intended for that particular use.

“The [report] is designed to determine the likelihood of someone defaulting on a loan, not whether someone would make a good employee,” Brad Clarkson of the National Association of Professional Background Screeners points out.  

Additionally, Larry Lambert, President of Employment Screening Services, Inc., explains that a credit report pulled for employment purposes doesn’t contain an actual credit score. Under the Fair Credit Reporting Act, that is illegal. Once obtained, the report will disclose mortgage and consumer debt payment records, delinquencies, charge-offs, levels of debt and personal bankruptcies. As such, many employers use it as a defacto character reference, essential to determining whether or not an employee can do the job in question. Employers can’t pull your credit report without your permission, but most jobseekers will sign off on the request forms for fear of losing out on the position.

From the employer’s prospective, the rationale for checking credit reports is often based on some degree of extrapolation.

“Sometimes it's because the position actually handles cash, and they want to see whether the job-seeker has a dire financial status that, the employer believes, might create a greater-than-usual incentive for employee theft,” workplace expert and former Fortune 500 HR executive Liz Ryan explains, “Sometimes it's because the employer believes in a made-up correlation between credit problems and general irresponsibility on the part of the job applicant.”

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