Credit background checks have become commonplace among employers, even as soaring unemployment and foreclosures have effected millions of people’s credit scores.
Credit checks are required for state and government federal with security clearances, however nearly 6 out of 10 private employers also check the credit histories of job applicants, according to a survey by the Society for Human Resource Management.
Companies do so primarily to prevent or reduce crime, such as theft and embezzlement. The concept is that people who have debt problems are more likely to steal or commit other crimes. Unfortunately nearly 70% of people have inaccurate information on their report, accounting for over 40 million mistakes as detailed by a recent 60 minutes piece.
- 13% of employers use credit checks for all their employees, including those who don’t handle monetary, fiduciary or even access to sensitive information. There’s no evidence credit checks are effective in preventing crime even in financially sensitive positions.
- 25% acknowledged that a bankruptcy on an applicant’s credit report would most likely result in a decision not to make a job offer. Here’s the problem: Using a bankruptcy as a decision not to hire (or to fire or to refuse a promotion) is illegal under federal law.
A majority (65%) allow applicants to explain credit-check results before the final hiring decision is made. But only 22% allow applicants to explain only after a decision is made, and 13% don’t allow any explanation. Even if employers are convinced that credit checks prevent crime, why wouldn’t they want to know if an applicant has erroneous information on their report, was the victim of identity theft or ran up debt for medical purposes?
Several states have curbed widespread use of credit checks in making hiring decisions and lawmakers are considering additional limitations in light of the acknowledgement that most reports contain errors.
Make sure to check your credit report prior to beginning the job application process, we are here to help if you need improvement.