LIMITATIONS OF CREDIT REPORTS
Through the years, one of the most common ways employers carry out background checks on prospective employees is to obtain a credit report. While a credit report may be useful in some circumstances, in the vast majority of hiring situations, a credit report has little or no value as a predictor of job performance. Why? Because whether or not a candidate has a large mortgage, pays his bills on time, or has significant credit card debt has next to nothing to do with whether or not that person will perform well on the job. What’s more, unless the job for which the candidate is being considered has something to do with access to the company’s cash, it probably is a waste of money to obtain a credit report at all. Recent legislation also precludes having a credit report prepared on candidates being considered for jobs that have nothing to do with the financial operations of the employer!
While that change may be perceived as limiting the information an employer can obtain about a prospective employee, it really doesn’t. Unless the job has something to do with access to the company vault, what difference does it make if the candidate pays his or her bills on time? What really matters is whether the candidate shows up for work on time! Some, however, will contend that a credit report, by inference, is indicative of how responsible a candidate will be, or how conscientious the candidate will be in terms being responsible on the job. While there might be a smidge of correlation between prompt check writing and prompt report writing, what makes far more sense is talking to people with whom the candidate has worked to ask about punctuality, responsibility, and promptness – rather than inferring it from a credit report!
On the other hand, obtaining a credit report on a candidate for the position of payroll clerk or company accountant or supervisor of accounts payable makes perfectly good sense! Someone apparently in need of money might not be the best choice for handling any cash transactions for the employer. Frankly, basing a hiring decision on something as marginally useful as a credit report is really the lazy hiring manager’s way to demonstrate that “something” was checked before a hiring decision was made. Does a credit report facilitate making the best hiring decision possible? Absolutely not. Furthermore, because purchasing a credit report is very inexpensive, it’s also the cheap way of attempting to claim that, again, “something” was checked.
A credit report only tells part of the story. Suppose a report discloses that a candidate has a $700,000 mortgage and the job being sought only pays $60K per year. A hiring manager might wonder about that apparent disparity. But what is NOT known is what the candidate’s spouse earns, where the property is located, what other sources of income the candidate might have, or a dozen other things that would easily explain the situation.
So, does it make sense to base a hiring decision on a credit report? It makes no sense at all, unless the successful candidate will be given the keys to the safe!