Consumer Comeback Blog

What You Should Know About Credit Checks on Job Applicants

What You Should Know About Credit Checks on Job Applicants

Background checks are necessary parts of certain kinds of employment processes. For example, if you are applying for a government job where security clearance is required, then a background check is an accepted part of that process. But background checks and, more specifically, credit checks are not always a necessary part of a job hunt. You need to know why employers use credit checks and what your rights are when it comes to releasing your credit information.

The Issues

The objections to credit checks are based primarily on the notion that it is an invasion of privacy. Employers feel that they have a right to know as much as possible about new applicants, while the applicants feel that employers are using credit checks as a form of screening that is not based on the applicant’s qualifications.

One issue that applicants have with credit checks is that it gives an employer a detailed look into the past of the applicant. If you are applying for a job where handling large sums of money is in the job description, then it would make sense that an employer would want to know about your credit history. If you cannot handle your own money or are having money problems, then you may be a threat to steal from the company. But if you are applying for a job in the mail room, then your credit history has little to do with your ability to do the job.

Another issue with employment credit checks is that it can encourage discrimination among employers. Your credit rating is not necessarily a reflection of how you handle money. Situations such as a divorce or a loss of job can have a severely negative effect on a person’s credit rating but are not necessarily the fault of the individual. Employers that use credit ratings as job hiring criteria are grouping all people with low credit scores into one group, and many people feel that is discrimination.

The Fight

Under the Fair Credit Reporting Act that was passed by congress in 1970 and amended to include credit checks in 2003, an employer must obtain an applicant’s written permission in order to do a credit check. That helps applicants to know when employers are looking at their credit reports, but it does not solve the issues.

Many states are trying to ban credit checks from the employment process completely. In the state of Ohio, legislation was introduced in 2011 that would ban all employers from using credit checks as part of the employment or promotion process.

Other states such as Maryland and Wisconsin are also considering legislation that would ban or limit the abilities of employers to use credit checks on applicants. Hawaii and Washington State have laws in effect that limit the ability of an employer to use a credit check during the application process. As of 2011, no state had actually passed a law that would prohibit employment credit checks completely.

Incomplete Data

A credit score alone does not give the full history of a consumer. Employers that use credit scores without asking for clarification can miss out on employees with stellar experience but who have had bad luck in the past.

There are several reasons why a person’s credit score would be low that are not that person’s fault. Some of these reasons include:

  • Unpaid medical bills that were not covered by insurance but too excessive for the consumer to pay.
  • A divorce that turned a two-income house into one-income and caused a major upheaval in the bill paying process.
  • Loss of a job that eliminated the income used to pay the bills or the inability to find a job after graduating from college.

In most cases, accumulation of unpaid debt that lowers a credit score is not the fault of the consumer. But these credit score hits can keep a person from being able to get the job he wants.

What Are They Looking For?

So what are employers looking for when they use your credit report as a hiring tool? Some of the information is purely speculative while other information is used as a check against the information you provided on your application and in your resume.

Credit Score

As we have mentioned previously, the employer is looking at your credit score to see if you are a reliable person. While it may not sound fair, an employer will sometimes equate a low credit score to being generally unreliable. You may be working three jobs to pay the bills and raising two kids, but if you are falling behind on your credit card payments, then that can label you as unreliable.

Work History

Your credit report has your work history and a potential employer is checking to see if you left anything out and to make sure you were accurate on what you reported on your application. This is why you should get copies of your credit reports and make sure the information is correct. One wrong job listing could cost you your chance at future employment.

Previous Addresses

Some employers like stable employees that do not move around a lot from place to place. When you move your home address frequently, employers think you are either hiding something or are unable to stay in one place for an extended period of time. This is another reliability check, and employers also want to make sure that you included your correct current and previous addresses on your application.

Financial Situation

Unfortunately, your credit report gives a fairly accurate picture of your financial situation. Once again, if you are working three jobs to pay the bills and trying to get a better job to get caught up, that will show up in your credit report. While your personal financial situation would seem to be none of a future employer’s business, it is still used as part of the employment process.

Until the federal or state governments put concrete laws on the books saying that credit checks are not part of a job application process, you will just have to take measures to protect yourself. Part of the Fair Credit Reporting Act says that every American consumer is entitled to one free copy of their credit report from each of the three major reporting agencies once a year. Order yours and make sure they are accurate.

Prior to going to a job interview, call your state attorney general’s office and ask what your rights are when it comes to credit checks and job applications. Get information in writing and know your rights before you give a potential employer the opportunity to look at your credit report.