Employers Look at Credit Reports | Ludicrous or Smart Business?

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“I’m sorry, Mr. Ford, but we are going to be unable to hire you because of some negative activity on your credit report.”

I think if I ever heard those words, I would cry foul.

I’ve previously said that your credit score matters, but I’m only just starting to learn about how important they can be.

Your Employer May Look at Your Credit Report

The Wall Street Journal reports that 1 in 6 employers look at a credit report.  Now, that might just force you to think twice before you go and sign up for multiple credit cards or flippantly say, “Credit scores don’t matter; they are just an I love debt score.”  Perhaps it would be more accurate to say that credit scores are an I love work score :).  To be clear, companies do not have access to your credit score, but just your credit history, which is found in the form of a credit report.

credit scoreIn fact, several months ago, the House Financial Services Committee is discussing the ethics of this very practice.

Oct 19th, 2010 creditreport.com wrote:

This week, the Equal Employment Opportunity Commission plans to hear testimony about the practice. In sum, the Equal Employment for All Act would make it unlawful to base adverse employment decisions against prospective or current employees on consumer credit reports.

In Hawaii and Washington, it is already illegal for an employer to access a credit report.

Are people with a poor credit report worse employees?

I can see how this would generally make sense.  Most people whom I’ve worked with who perform well on the job perform well in many aspects of life.

MSN Money claims:

applicants for Transportation Security Administration airport screener jobs are rejected if they have more than $5,000 in overdue debt.

I think it is ludicrous that they have access to that kind of information.  But it probably makes sense that your financial responsibility may indicate your overall level of personal responsibility (or am I just being judgmental?).

I haven’t hired very many people in my life – just a few support staff for this website.  Most of the interviews were conducted via email.  However, even without talking to someone, without looking at someone’s credit history, you know almost instantaneously if that person is a good worker and a good fit.

Sure, bosses should have access to any relevant documents, but I don’t think this is at the top of the list in terms of relevance.  If they look at your transcripts, look at your employment history, and contact your references, isn’t that enough?

On the other hand, I do think this serves to remind all of us that what you do with your not-so-personal finances may become someone else’s business.  Moreover, it shows that some employers think extreme levels of debt might impact your performance – and they’re probably right.

Either way, the case can still be made that paying some prudent attention to your credit score is a wise idea.  That’s why a few months I signed up for Credit Karma’s free services.  I wanted to monitor, in a general way, my credit activity and score.  I’m not going to obsess over getting a good credit score, but I’m going to admit that the credit score impacts a lot more than just my ability to get debt – at least for now.  We’ll have to see if the laws change any time soon.

What do you think – should employers have the right to review your credit history and base a hiring decision on those results?

Comments

  1. says

    In general I’d say no. However, if the job being applied for is has serious core responsibilities that affect the welfare or security of people in their care, i.e. a Judge, a Police Officer, CFO of a corporation or something akin to that, then maybe it is quite wise. Outside of jobs of those seriousness then it should not be done, its just intrusive behavior from the employer.

  2. says

    So, do prospective employers look at your score or your credit report?

    If they look at your credit report, I think this makes sense. Do you want to hire someone who doesn’t pay his bills? He may steal from you or not give you a days work for a days pay. It it’s just 1 or 2 overdue bills and/or they are only a few days late, then that’s one thing and may have a good explanation. But if he has 10-20 overdue bills, some for many months, that’s a different story.

    If an employer bases his decision on a score or without trying to understand what’s in the credit report, then it’s probably not somewhere I want to work anyway.

    I check my credit report regularly to ensure it’s up to date. Haven’t checked my score, but did find out what it was last October when we bought a car.

  3. JMD says

    I have had credit background checks done for three different jobs I was eventually hired to do. Two of the jobs required working with large sums of money and the other was in a confidential position at a Police Dept. I didn’t have a problem with it and still don’t.

    I have worked with people who are unable to manage their money and most of their day is spent trying to deal with financial issues. It was distracting to the work environment not to mention they had reduced productivity.

  4. Scott F says

    I have been employed in many jobs that have done this. Mainly for those who are dealing with money to ensure they aren’t in such financial hardship they might be tempted to embezzle. That said, I think an employer is foolish not to bring this up to the applicant first for explanation. I have known many people who ended up divorced because of the terrible financial decisions and addictions of a spouse. As they are rebuilding their lives, a credit score that is the result of a spouse’s (now ex) problems should be considered and not rule out a good applicant. Same with major family illness, an extended period of unemployment, etc. Finances can be a mess due to life hardships — not always due to poor money management. A smart employer should dig deeper and not pass up a good employee.

  5. says

    In the seventies, I remember applying for a position at EDS. In those days, Ross Perot ran that company. I was asked to fill out a 8 page (front & back) application, it was a full financial statement. He felt debt was dangerous and would undermine his employees. He was a pioneer! I don’t have a problem with people seeing my credit report. I am more concerned that they may not interpret it correctly.

  6. says

    I certainly hope they don’t start making credit reports a requirement for jobs in the medical field. With all the debt most doctors get into with med school, they’d never get an actual job. I did hear a story, though, of an attorney that the New York state bar refused to admit to the bar because they said he had too much debt. Crazy.

  7. JMD says

    When I was much younger I worked for various attorneys. They were literally the worst for paying their bills…they counted on a law degee to buy them time. Just saying. I am sure that probably not all are that way but five were. Even their paper boysthey would be 3 to 4 months late paying the bill!

  8. Kim says

    I don’t think that employers should base employment off of credit history. I’m bias because during the economic down turn me and my husband loss our jobs and relied on family to help make ends meet. I became pregnant an experience various difficulties during the pregnancy and still was unable to work. One year later after having our daughter, I was able to find employment (needless to say that my credit history was awful). The employer did view my credit history but still hired me (thanks be to God). After almost one year on the job, I can say that I received a stellar performance appraisal and my financial hardships have never affected my job performance or any of the sort.

    I don’t believe credit history has anything to do with whether to employ someone or not. You can tell more about a person from prior job history (length of time, etc.).

    • says

      Kim,
      I agree about not deciding only on the credit history. Much like Scott said employers should follow up to get the real scoop. Unfortunately, they don’t always do that.

  9. Laura says

    My first job out of college was for a government contractor and after my last round of interviews they said “we have some concerns because we couldn’t find any credit history for you.” And I said “well that’s because I’ve never had a credit card.” And they were ok with it and actually complimented me on it, and then hired me. I can see how it can be useful information, and a bad credit history would justifiably raise some red flags, but an absence of a credit history or student loan debt shouldn’t automatically disqualify you. I actually would rather them have seen my credit score, because when I applied for a mortgage a year later (still after never having a credit card) my score was over 800.

  10. says

    Hi, Craig,

    I agree this that in most cases this is probably just plain wrong. But in all.

    For instance, what if somebody has a bad credit score because they have no debt? Dave Ramsey brags about being in this position. Someone like that is obviously far more responsible than average.

    Traditionally, sales managers are happy when they see their commissioned sales people splurging on cars and other expenses that put them far into debt, because they believe it will motivate the sales people to work harder. But this kind of attitude and thinking doesn’t carry over to more staid departments of a business.

    To my way of thinking, it should apply to everybody, yet I don’t see personal finance advisers or writers emphasize that enough. Debt is bad, so use it as not only a time to cut expenses to the bone, but to increase your income and income capacity. To whatever extent I ever receive Social Security, my checks will be higher thanks to the second jobs I worked to get myself out of debt.

    However, the same pressure can put the idea of theft into the minds of some employees, so I can see employers who are trying to hire someone for a particularly sensitive job with access to important financial or other company records being concerned.

    Of course, if someone is dishonest, they will steal whether they’re in debt or not – but there can be close correlation.

  11. Wes Smith says

    I manage a team of procurement managers. We spend the company’s money, we have to be responsible. One thing I look for in potential employees is are they as careful with the company’s money as their own? If they are not careful with their own money, will they be careful with the company’s? Also if they have large debt, people will be more susceptible to tempation of being influenced by improper gifts. A credit report could be a valuable piece of information to some employers.

    • says

      Wes,
      Welcome! Thanks for your comment.
      I guess since I’ve spend more time trying to get hired instead of trying to hire people I focused on the side of the employee. However, it could be a valuable tool for employers.

  12. Gabe says

    Interesting thoughts.
    The government issues security clearances, and one of the major factors can be unpaid bills, or poor credit history. You can lose a Top Secret clearance or even a Secret clearance, if you have too much debt, EVEN if you are paying all the bills on time. They see this as a liability based on you having access, as a government employee, to secrets, and motivation, based on your debt or bills, to sell.
    Private industry probably CAN learn some about a person’s responsibility from that sort of report, but there is much more that should be considered.

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