Practice of Using Credit Checks for Hiring is Fading

Authored By W.Barry Nixon, SHRM- CMP

Despite the debates and discussions at the federal level about new regulations to address the concerns about the impact of background checks on the nation’s high unemployment rate and the EEOC’s release of new guidance for conducting checks, there has been little movement in this area.

At one point, credit checks were a part of the hiring process, based on the belief that it was a measure of integrity, trustworthiness and stability, but, due to high unemployment, a massive meltdown in the housing industry, a record level of foreclosures and extensive layoffs, the importance of credit in background screening has been questioned.

According to Sarah Crawford, an attorney with the Lawyers’ Committee for Civil Rights Under Law, many credit problems are due to factors outside of a person’s control, including medical bills and identify theft.

Several state legislators acted to address the perceived issue, which was believed to impede peoples’ ability to get a job. According to the National Conference of State Legislatures, in November 2012, 40 bills in 19 states and the District of Columbia were introduced or are pending. Out of the total 41 bills, 40 address restrictions on the use of credit information. Eight states now limit employers’ use of credit information in employment.

California, for instance, signed into law a bill that “prohibits an employer or prospective employer, with the exception of certain financial institutions, from obtaining a consumer credit report for employment purposes under clearly defined positions.

It is believed that more states will become involved based upon the lingering high rate of unemployment. Private investigators should be aware that there must be a nexus between the credit check and job requirements when conducting a credit screening. Investigators who work with clients to fully understand the laws surrounding this issue will help the employer avoid discrimination and legal liability. Steer clear of blanket rules about use of credit checks and focus on specific positions where business necessity can be determined, such as banking and finance. Even so, it is important to consider the use of an individual assessment to review the specific individual’s background and circumstances.

Employers should also consider putting into a place a policy that covers their use of credit checks as part of their overall background checking policy. HireRight’s Employment Screening Benchmarking Report demonstrated that 69% of client respondents had not changed their credit check policy in the year prior, 26% had done so and another 5% was planning to.

For those who do use credit checks as part of their screening policy, it is imperative to stay in compliance with the FCRA by having a signed document from the potential hire, obtaing authorization for Internet applications, giving the applicant a copy of the report in the case of a rejection, and building a mechanism into the existing policy that ensures personnel involved with hiring are knowledgeable about the policy.

According to the Society for Human Resource Management, employers do slowly appear to be getting the message and reported that eight out of 10 employers hired candidates who had poor credit reports and two-thirds allowed candidates to explain why their credit information was negative.

In addition, the society’s president reported that 58% percent of those who conduct credit background checks do so after a contingent job offer has been made and 33% after the job interview. In those instances, 87% are in positions with financial responsibilities, 42% for senior executive positions and 34% for those with access to highly confidential employee information. Those surveyed reported their reason for conducting the credit screening is to reduce or prevent theft and embezzlement.

Post By Barry Nixon (260 Posts)

W. Barry Nixon is the COO, the leading background screening information portal and online worldwide directory of professional background screening firms and Suppliers to the background screening industry. He co-authored the landmark book, Background Screening & Investigations: Managing Hiring Risk from the HR and Security Perspective. He also is the publisher of award winning newsletters, The Background Buzz and The Global Background Screener, and the author of the Background Checks column in PI Magazine.

In addition, Barry is a past recipient of the elite ‘Top 25 Influential People in Security’ by Security Magazine and past Co-Chair, International Committee for the National Association for Professional Background Screeners (NAPBS). He currently serves as a Global Ambassador for NAPBS.

You can contact Barry at 1-949-770-5264 or online at