After more than 40 years in the pre-employment and reference checking business, I must admit that I continue to be amazed at the number of employers who still rely on nothing more than a credit check when making hiring decisions. 

The only thing I’ve been able to conclude is that performing a credit check is the quickest, cheapest, and easiest way to screen applicants for employment – on the basis of their creditworthiness. I’ve never seen much of a connection, however, between a prospective employee’s credit history and his or her ability to perform the tasks a job requires.

However, there are times it makes sense for employers to consider performing a credit check on a candidate as part of a thorough background check that also includes employment verification, criminal history and reference checks, etc. In our most recent blog, I’m going to talk about the situations when it does make sense to perform a credit check on a candidate and when the outcome could lead to rescinded job offers.

When to Perform a Credit Check

The only time performing a credit check on a candidate makes sense to me is if the job has some financial responsibility associated with it or the job will give the candidate access to the company funds or credit cards. These positions are common in the finance, accounting, government and trading industries.

If the job to be filled has nothing to do with money or finance, though, finding out an applicant’s credit score, amount of debt they have and whether they pay their bills on time seems irrelevant to me.

It’s important to note that 11 states ban employers from discriminating against job candidates based on their credit no matter what the position is. In states where it’s legal to perform credit checks during background screenings, employers must receive the candidate’s written consent to do so. If a candidate does not give consent, they do run the significant risk of being denied a job.

Here is some of the information that will appear on a credit report:

  • A summary of how much money is owed on credit cards and bank loans.
  • Past-due or late payments on credit cards or loans.
  • Credit limits, civil litigation involving credit, collections, and bankruptcies.
  • The types of loans, terms of payment, and how much the payments are.
  • A disclosure of any other credit reports that have been requested on the candidate for employment.

When Would an Employer Rescind a Job Offer Based on a Credit Check?

In cases where the job candidate has had serious financial difficulties, an employer might want to consider rescinding the job offer and look for candidates with a better credit history. After all, it’s not unreasonable to assume that candidates who can’t manage their own finances well would do any better managing a company’s finances.

It’s even possible that a candidate with serious financial difficulties could be more tempted to access company funds, whether it’s the cash drawer, credit card or checking account. It’s especially important to hire trustworthy people for government positions where public funds will be handled.

A background check or a reference report will provide employers with so much more job performance information than a credit check can possibly provide. A credit check makes sense as part of a thorough background and reference check, particularly if the position is going to include access to the company cash drawer, credit card, or checking account.

However, it’s neither a good idea nor fair to the candidate for a credit check to be the only check performed on a candidate for employment – just as basing a hiring decision based on the candidate’s height really doesn’t make any sense.

Why Do Some Employers Only Perform Credit Checks?

One other explanation why so many employers may still rely on just a simple credit check is the belief that it will protect them if something should go wrong. In the event that happens, the employer can claim a check was done before the hiring decision was made – or so they may believe.

But there are so many other factors that should be considered before making a hiring decision, and it seems foolish to think that liability can be avoided by performing a credit check. Let’s say, for instance, an employee has a past history of workplace violence that could have been uncovered by doing a court check or by checking references. Now, let’s suppose the employee does the same thing again. A credit check will probably not shield the employer from liability because it will be argued that, “the employer knew or should have known” about the employee’s history of workplace violence. A credit check alone will not demonstrate, in other words, that “reasonable care” was used in the hiring process.

It’s also important for employers to understand that all sorts of unintended things can happen that will damage an otherwise outstanding candidate’s credit history – identity theft, an overdue bill that’s simply lost or misplaced, or any of a hundred other things. That’s why just doing a credit check is a poor way to screen applicants for employment. 

Frankly, if an applicant’s creditworthiness or credit history has nothing at all to do with the requirements of the job, it’s not worth much as a predictor of future job performance.

Contact Barada Associates for Your Company’s Background Checking Needs

Barada Associates is a leader in providing background checks, reference reports and employment verifications to employers across the United States. Our professionals help companies find talent that fits their culture and environment through extensive background checks. Contact Barada today to request a quote or set up an appointment.