Doing a credit check is another tool that may be used as part of a thorough background check on candidates for employment. In a nutshell, a credit check is a summary of money someone owes to others.  Normally, lending institutions, credit card companies, and retailers who extend credit to their customers use credit checks to decide whether or not the person seeking credit is a good credit risk.

Many employers also use credit checks as a way to screen job seekers out of further consideration for employment.  The notion is that credit worthiness can be a predictor of how well someone will perform on the job.  This concept is, however, debatable.  Why?  How can anyone possibly infer things like management style or ascertain skill sets or core competencies from a credit report?  Well, the point is, you can’t.  I think there are only two valid reasons for doing a credit check on a candidate for employment:

  1. A credit check is appropriate if the nature of the position requires it. For instance, if an employer is going to hire someone who will have access to company funds, financial records, or the combination to the company safe, it would be appropriate – and reasonable – to have a credit check done, because a candidate who’s having serious financial difficulties could be tempted to access company funds for personal gain or to fend off creditors. Furthermore, if a candidate can’t manage his own personal finances very well, it’s not unreasonable to assume that he wouldn’t do any better handling the company’s funds.
  2. A credit check is appropriate if the prospective employer has a valid reason to believe a candidate’s personal financial position might adversely affect his ability to do the job. For instance, if financial difficulties result in a court-ordered wage garnishment to be imposed on the employer or if the candidate is going to be spending a significant amount of time away from the job dealing with collection agencies or being in court, then doing a credit check would be a reasonable step to take before making a hiring decision.

Otherwise, using a credit report, in my opinion, to evaluate a candidate’s eligibility for employment is a waste of time and money. The point of collecting credit information is to help lending institutions and other businesses that extend credit to customers decide whether or not the person is a good credit risk – that is, whether or not the person will be able to make payments or repay money loaned.