why do employers run credit checks on potential hires?

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A reader writes:

How widespread is it to look at a job applicant’s credit history when considering them for a position? Why is this done? It seems like a complete invasion of privacy and a means to see how much salary you “really” need.

For a young person starting out in their career, I have a great credit score, but tons of debt. I am very responsible in paying my bills, but I don’t see why this information should be available to anyone other than myself. And for those who are also unemployed and don’t have a good score, what a horrible catch-22.

Shed some light please?!

It used to be that job seekers would only encounter a credit check if they were applying for a job that involved handling money or having authority over money. Some employers are now starting to use them more frequently — but certainly not all or even most.

For positions handling money, credit checks are done to see if you have a pattern of handling money responsibly, or whether you have a checkered history that might impact your integrity and reliability when it comes to the company’s cash.

For other types of positions, some people think that a credit report can show patterns of poor decision-making or lack of responsibility — using it almost as a character reference.

Personally, unless the position handles money, I think credit checks are an invasion of privacy and the sort of over-reaching and abuse of power that really irks me to see in employers. Not only that, but I don’t know of any research indicating a correlation between good credit and strong job performance, so I think the whole practice is suspect.

(By the way, Liz Wolgemuth has a great article here about a bill that was recently introduced in Congress to prevent private non-financial companies from running credit checks on job candidates.)

{ 38 comments… read them below }

  1. Christine Witt

    Totally agree and want to add – running a credit check on someone doesn't give the whole story.

    In my 20s, I had horrible credit. Had an employer wanted to check my credit, I would have looked like a bad risk. The truth was, though, that I was getting divorced and involved in an expensive custody situation. Letting some of my bills go during that time was the right and responsible decision, but that definitely wasn't reflected on my credit report.

    I see very few valid reasons to check the credit of job applicants.

  2. Anonymous

    I think that any position that requires the person to handle or have access to significant amounts of money should require a credit check. I currently work in retail and there are are several individuals who work in the cash office with access to the safe who are not known for their sound financial management skills. I hope they are honest individuals who won't steal money, but by allowing them access to that large amount of money, my employer is taking a risk.

    I certainly wouldn't want to be blamed if there is a cash loss so it's in my best interest to have honest people in the cash office. That concept usually means that my employer runs a credit check and will have people with good credit and someone who will be perceived as a person who won't want to take money from the office.

    1. Anonymous

      Exactly. The loss prevention procedures and accounting standards at the company should lower risk of loss. None of those at the large American banks that failed in 2008, plunging the world into a recession and financial disaster, would have failed a simple credit check. It was their own internal controls that led to the banks’ failures.

      The credit check is an unwarranted intrusion into the private affairs of the individual and may only be required by the bonding company for insurance purposes. It is not needed by the firm’s HR department.

  3. Caitlin

    They also run credit checks if there is a potential for the employee to need to get a clearance. Bad credit/excessive debt will usually preclude you from receiving a clearance.

  4. Hairy HR Guy

    We run background checks on all of our new hires as a pre-employment check. Because of government requirements for notification, i.e. telling the candidate that we will "… retrieve information from all personnel, educational institutions, government agencies, companies, corporations, credit reporting agencies…", and because the notice has to state in accordance witht the Fair Credit Reporting Act, many of our candidates believe that a credit report is being done. Don't know enough about what the reader was looking at or told — maybe this could explain it?

    1. Anonymous

      That explains nothing. That doesn’t give a reason for doing it, that’s just a bunch of gibberish that says you do credit checks because the candidates believe it’s being done. That’s not a valid answer to the original question!

  5. Anonymous

    The FCRA clearly states that the credit checks are subject to the Equal Oppertunity guidelines. As such, if an employer uses a credit check, the credit check MUST be DIRECTLY relevant to the job. The credit check can only be conducted with permission. If there is any negative decision made because of the report, the employer MUST give you a copy and tell you it is because of the report and give you the information to contact the credit agency with which they checked so you can clear up any identity theft, dispute any incorrect information, etc.

    If the employer doesn't follow the FCRA, you have the right to sue and claim damages. There are recourses if employers don't follow the law both under the FCRA and under the EEOC if the credit checks are NOT job related.

    We employ people with a couple spots on thier records but if the credit is consitently mismangaded, we won't hire the person. I think there is something to be said for access to cash but even more importantly, if the person can't manage their own finances and wants a position of substaintial authority, why would I hire them to manage my finances or my companies? I would be crazy. If you have credit issues and know you have credit issues and are applying for one of these jobs, you should take the initiave and let the employer know when they ask to conduct the credit check if you have an extenuating circumstances or why there are some issues. The time to bring it up is when I ask to check the credit not after because by then my assuption was that you were tring to hide it. I won't ask to check the credit unless I am serious about persuing you for the position.

    I would also say that these checks are costly. I am not going to run a credit check on every employee, only the ones that have significant access to cash or influence within my company. There are other checks and balances in place. Right now we run credit checks on anyone with the authority to sign checks, our AR/AP people and the cashier supervisor who locks up at night. That's it. Out of 350 employees we only run 20 credit checks.

    I think the Hairy HR guy might be right that job seekers might be confused. The use of criminal background checks are also governed by the Fair Credit Reporting Act and as such use the same disclosures… As the HR Pro, I try to explain the difference as I have my employees sign the forms and explain to them what we are actually doing so they uderstand the process and are fully informed. Our credit check and background check use the same disclosures but are completely different forms.

    1. Anonymous

      So do you think I should bring up my low credit score in the 3 Assistant Manager interviews I have lined up? I don’t want to Jinks myself.

  6. Kerry

    I can't even begin to express how I loathe this practice. I refuse to work for an employer who does this (and my credit is excellent, and I have no debt other than my mortgage and one car…so that's not the issue).

    Even for positions that handle money, there is NO connection between bad credit and stealing money. For that to make sense, you'd have to run credit checks on existing employees regularly, not just new hires. No one does, because there's NO connection.

    One of the biggest reasons for bad credit is medical bills. People get sick, and they either don't have insurance or have crappy insurance. How does that indicate bad character? Bad luck, maybe. Bad character? Nope.

    Women are also disproportionally harmed by divorce in terms of their finances/credit. They are more likely to stop working to stay home with children, and when they divorce, their financial situation is statistically far more likely to deteriorate. That's not a sign of bad character either.

    Like I said–I don't work for people who rely on credit checks as a character reference, anytime, ever. I've seen up close how employers REALLY use this information, and I never ever want to be a part of that again.

  7. Rebecca

    I hope the bill outlined in Liz's article passes, even though I'm pretty confident that employers will find creative ways around it. The situation described in the beginning of the article is way too common, and I've also seen new graduates lose out (you need a job to pay off the loans you took out to go to college… but you'd be a bad employee because you took out loans to go to college?).

  8. Ben Eubanks

    As far as I know, a credit check won't show your pay/salary, so it won't tell them how much money you "need."

    Unless I'm wrong. Which may have happened once or twice.

    1. Anonymous

      It may not show your salary (frankly I don’t know) but it will show if you’re in financial trouble. If you are struggling you’re going to need the job more and would be more likely to accept a lower wage.

  9. Anonymous

    There is also the case of identity theft. Just after I started looking for a new job a couple of years ago, I found out I was an identity theft victim. Every place I interviewed where the employer ran credit checks, I informed them that I was resolving a case of identity theft, and could provide copies of my police report and all my communications with the credit bureaus to prove it.

    Never heard from any of them again. I suppose it's possible I messed up those interviews in other ways, but I can't help but wonder if the employers thought I was lying or thought it was my own fault I'd been a victim (if you're thinking "well if you let your identity get stolen you obviously aren't that responsible" — please tell me how I was supposed to keep my own father from knowing my address, birthdate, and SSN).

  10. Kerry

    It doesn't show your pay. It does show how much you owe. Here's how I've seen that used in practice:

    "He owes a ton of money. We shouldn't hire him because he's constantly going to be asking for raises/looking for a higher-paying job/likely to steal from us."

    "I don't think she's balk at the demotion. Didn't you see her credit report? She's in debt up to her eyeballs. No way is she going to quit."

    "I think she's got some sort of serious illness. Her credit report is full of medical bills. If we hire her, our insurance rates are going to go up. I think we dodged a bullet here."

    "He's single and he doesn't have any debt. He's probably got family money. I bet we could get him for $30K" (for a job they were otherwise going to pay $38-42K…and they DID get the guy for $30K, and he ended up getting fired for stealing, because "no debt" does not mean "unlikely to steal")

    True stories, every one.

    1. Anonymous

      Even if those stories weren’t true they are positively anecdotal about how wrong this practice is. I suspect that every Member of Parliament who votes for excessive expenditures at the public’s expense has a gold-plated credit rating and yet they still spend like drunken sailors.

      A few of them wind up in court facing corruption charges, too.

  11. Ono

    Kerry, your true stories are pretty much why I asked. I have nothing to hide, but I think its entirely unfair AND unethical. Your stories are proof that gaining that knowledge doesn't make for an unbiased assessment of the person's skills and fit for the job. Loosely veiled screening.

    I have been out of college for almost 3 years now. I remember several instructors telling us about this and thinking "no way". But, I DID see it on one of my applications recently.

  12. George Guajardo

    Kerry and I are on the same page, it seems. I was thinking about the potential for adverse impact of this practice. It is likely that some demographic groups would be affected negatively than others if this practice is used for selection.

    In and of itself, this is not sufficient reason to eliminate the practice, but if it is the case, then the employer had better have some serious evidence that credit scores predict job performance, or other specific job-related behavior (stealing, absenteeism, turnover, etc.).

    In all my years studying selection systems, I never came across an empirical study linking credit scores with performance. Maybe I missed something…

  13. class-factotum

    Wow, Kerry, I had no idea. I do know that I was not happy that I had to submit a blood sample as part of a pre-employment physical (for a desk job). I wondered what information they were looking for and how it would be used. If I were diabetic or had some other condition, would they have retracted the job offer?

  14. Kerry

    My husband had TB tests at his last couple of jobs, because he works in a hospital (not as a health care provider, but he does have contact with patients). They were all post-hire though.

    I can't imagine why they would need a pre-hire blood sample. That's a little horrifying.

  15. Anonymous

    One thing I didn't see mentioned is that credit reports include a list of organizations that have requested that report along with the reason (job application, loan application, etc). Would it be possible a credit check could show other companies an applicant had applied to previously?

  16. Anonymous

    Like any screening, it doesn't give the whole story, but it does help in the decision.

    2 people we've hired had horrible credit problems, which prevented them from traveling (ever try renting a car without a credit card?) until I could rush through a corporate credit card app.

    They both ended up using the cards for personal purchases and were eventually dismissed.

  17. Debbie

    Not only do I agree that a credit check has nothing to do with how one performs on a job. Handling money or not there are people that are ethical, but have fallen on hard times that would never be tempted by the amount of money they handle; it's just not worth the risk of the consequences of being caught and those that steal from their employers will be caught.

    Did everyone forget about our bad economy and the layoffs involved. I don't think those that are having credit problems are because they were not cautious about handling money, they probably never thought the economy would get this bad and didn't think they would be laid off. They probably used all their savings, all their resources and still haven't found a job yet. Credit checks should have nothing to do with a potential candidate getting a job.

  18. Anonymous

    Employers will discriminate any way they can. In fact, they do so every day. It may not be in-your-face discrimination but there are ways around the law.

    Older workers can easily be snubbed by a manager who simply states that a younger worker is better qualified. No proof necessary since employment apps are not public documents and applicants give in to whatever managers tell them.

    There's always a way to pick one employee over another.

    Credit checks are not necessary and applicants must stand their ground. Unless the job involves money, credit checks prove nothing and can indeed be used against you.

    Stand your grond.

  19. Anonymous

    I have been unemployed over a year now. Of course, my credit isn't good. I need a job in the worst way and I have excellent skills. I am an honest person and a hard worker. I think it's unfair to judge someone on their credit score. How in the world will people like me ever get ahead if we are being judge on that? I have applied for hundreds of jobs and have had no luck at all. My credit score must be the problem. I think it should be against the law to check someones credit score unless the job requires the handling of money. That needs to be changed. Especially with the unemployment rates like they are. Let's say all the people who have questionable credit can't get a job; what does that say about our country and it's leaders. Most of us with credit problems have them because of our so called leaders. We need to write our congressmen, Senators, etc. and get this practice changed.

    1. Anonymous

      I don’t think that a credit check should be done even if money handling is involved. A police check will tell them more about a person’s likeliness to steal rather than a credit check will.

      There’s no excuse for a credit check in ANY kind of job!

      1. Anonymous

        Criminal background checks and employment references are entirely in-bounds and I’d expect nothing less when applying for a job regardless of “handling money” or not.

        The parade of “only if handling money” apologists for credit checks ignore the fact that it is *every* employee’s duty to manage and protect the company’s assets. That clerk that was rude to a customer costs a lot more than the risk associated with “bad” credit scores.

  20. Anonymous

    Specially now days where the economy is so bad, people get short hours, or laid off and can’t pay bills. so of course their credit is bad or not as good as they like because of issues that came up.

  21. Anonymous

    Today in this ecomony where there is most likely Problems with bad credit a company should not judge whether or not that person is right for the job. Not having a job makes some have to provide for themselves and family by having to use all resources and some have to neglect bills in order to put food on the table.

  22. Anonymous

    My husband was told today that he was no longer qualified for a job he had been offered on paper, due to credit. He was unemployed for a year due to massive layouts in his company in 09, and our credit went to hell in a hand basket during that time. He took a job last year that is severely underpaid and we have doing the best we can to get back into good standing. This dream job was going to enable that. Best part, he’s an IT worker, this job would have NOTHING to do with money, but because its policy.. I hate this practice and see it as discriminatory.

    1. Ask a Manager Post author

      I agree. I encourage you to write to your members of Congress, as well as your state legislators, and ask them to do something about this practice.

  23. Brett Rutledge

    I have save newspaper announce about credit check, State may ban credit checks on applicants by employers.
    springfield, Illinois, has joined a national trend in considering whether to ban employers from performing credit checks on job applicants during a recession that has left nearly 11 percent in the state unemployed.
    Legislation pending in the Illinois House would prohibit businesses from hiring based on a person’s credit history to spare people who lose their jobs and their homes from being “double victimized” when they cannot find new work, its top supporter said.
    “Can you imagine you’re someone who, at no fault of your own, you lose everything-you’re laid off, you cannot afford your mortgage so you lose your home and then when you’re trying to get back on your feet, you got companies running credit checks on you while you’re looking for jobs?” said Rep. Jack Frank D-Woodstock, Chief House sponsor.

  24. Josie

    I recently got married and moved and had filed Bankruptcy 2 years ago. I have had no luck at all in finding a job! I worked for my last employer 15 years and am honest and true. All companies make you apply online and you have to agree to credit checks or you can’t submit an application. I am also over 50 and so far this has been a nightmare!

  25. TDL

    I authorized a government agency to obtain my credit file solely for the purpose of evaluating my application for contract work on a specific govermnent job announced in a “Request for Proposals” published by that agency. Only after (I repeat, after) the agency had first notified me in writing of its decision to reject my application did it go ahead and nevertheless request and later receive my credit report from Equifax. Since it had already rejected my application for the contract, wasn’t this post-rejection and thus unauthorized snooping into my credit file illegal? If so, what if anything can I do about it – other than move to a country where government employees are at least honest enough to admit their goal in life is to enjoy jerking people around?

    1. Ask a Manager Post author

      How do you know it wasn’t a mistake? That would be my first conclusion, not that “their goal in life is to enjoy jerking people around,” which is obviously silly?

  26. kj

    I filed for bankruptcy 6 years ago when I was left with massive debt after a seperation. Since then, I have had 2 new cars, a credit line and 2 credit cards which I pay religiously. I am the perfect example of someone who is trying to re-establish my credit. However, I have recently become unemployed and am desperately seeking a position in my field and keep getting the same answer: credit sucks, then you must suck as well” thing is, if I knew someone was working this hard to re-establish their credit and I was using this as a character assessment, I would hire them in a minute. To say the practice is unfair is an understatement. My criminal record is clean. And I will most likely end up settling for something that under-utilizes my skills and be horribly miserable.

  27. Anonymous

    My husband lost his job in May and was called for an interview last week. They told him they were going to do a credit check, well here’s the thing, we NEVER had a credit card because we always bought things in cash. If we didn’t have the cash we didn’t buy it. So tell me, how is he going to get a job with no credit history? This is ridiculous!

  28. Anonymous

    I have worked in Retail for most of my life. Even owned my own business. I am at this point in my life(at 25) I deserve(possibly) a store managers position,or even a DM’s position,but because I don’t have experience in either at other retail stores,I apply for Assistant Manager positions. My credit is horrible-Medical Bills-Student Loans,credit cards-etc!! I can’t find a job more that $9-10 an hour that will allow me to pay any of it off. My car note is $600 on top of that I have no insurance-plus I have to live,pay phone bill,rent….I can barely live right now! Last year around Christmas time,I worked seasonal for an high end store. I became very close with many of the employees,including the Store Manager. During this year(around summer time) the store manager called to tell me how much she loved my work ethics,how i had excellent sales and Customer service skills,then asked if I would like to apply for the managers position she had available? Of course,I answered. Was told all she needed to do was do a credit check and I had the position. Because of my Bad Credit I did not get the job. I was so upset. I have all of this experience,and I couldn’t get a job SHE recommended me for. I started asking around and people were saying stores like Guess and BeBe do run your credit,but places like Forever 21 and Love Culture don’t make a big deal out of it. I read someone say above how-it’s best to bring it up,as soon as the manager wants to run a background… That’s the thing I’m scared of when I apply for manager positions at other locations-I don’t want to Jinks myself or at the same time have them thinking I’m hiding something…I have 3 Assistant Manager position interviews lined up. I am so scared and nervous and already have doubts in my mind…

  29. Natalie Wilson

    Bad credit has nothing to do with your character! I have bad credit and I DO NOT STEAL!! And, while employers are looking at the so called thieves with bad credit, they need to be looking at the wolves in sheep clothing stealing them dry! NEVER JUDGE A BOOK BY IT’S COVER!

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