6 myths about credit report checks by employers
Competition for decent jobs is fierce these days, but are
employers weeding out undesirables by analyzing every applicant's credit
report? Forget what you think you know about employers' credit check process --
the reality may surprise you.
Myth No. 1: Most employers pull all applicant's reports.
If you do have credit problems, you just may be safe from
scrutiny. The 2010 Society for Human Resource Management report, "Background
Checking: The Implications of Credit Background Checks on Hiring Decisions,"
found that while almost six in 10 organizations pull credit reports on at least some candidates, only 13 percent check them all.
"Typically the credit check is not for all jobs," says Tony
Deblauwe, founder of the human resource consultancy company HR4Change, and
author of "Tangling with Tyrants: Managing the Balance of Power at Work."
"Usually there has to be a reason, such as the job is in finance, or an
executive level job with profit and loss responsibility."
Companies with a universal credit-pulling approach have
specific reasons for their policy. For example, Christopher Desbarres is
president of Help Unlimited, which helps individuals manage their personal
finances, and says his company checks all prospective employee's reports because
of the nature of the business -- intimately dealing with other people's cash
Desbarres does say, however, that credit checks are only pulled
after the decision to hire. "It should be one of, if not the, last things you
check. Otherwise, you are wasting time and money. It is not a good tool for
weeding out potential applicants."
Truth: While many prospective employers check some, few check all -- and even then, it's usually for specific reasons.
Myth No. 2: Employers and lenders look for the same information.
While lenders place strong emphasis
on credit reports, Deblauwe says that it's only a small part of an
employer's holistic evaluation. Your credit report could be a show-stopper,
though, when what's on it causes doubt
about your ability to handle and manage corporate assets, such as debt that
went into collections or litigation.
And unlike lenders, employers don't check credit scores, but
they may access a comprehensive background report, such as the ones available on LexisNexis.
Along with your credit history, it lists data such as your past employment,
insurance and legal activity. You're entitled to one of these reports free per
year, so if you're job hunting, pull the reports.
Also, employers tend to make
longer term assessments than their banking counterparts. The Human
Resource Management report found that most
organizations focus on credit history of four to seven years overall.
Consequently, even if you've improved your credit lately, you may still have to
explain indiscretions from bygone years to
the person making hiring decisions.
Truth: Employers take a longer view on your credit past.
Myth No. 3: Poor credit will immediately disqualify you.
So if you have bad credit, will
your resume be tossed? Doubtful, says Tom Armour, co-founder of HighReturnSelection.com,
a company that teaches businesses how to improve their hiring process. One
reason, he says, is that decision-makers are often unclear about how to read credit reports and rarely know how to apply
what they do see.
I'd rather be in the position of not hiring
someone because of what I found than having to explain why I did, and they did
Michael and Susan Dell Foundation
"In the last number of years I have asked my staff, the
recruiters, if they can read and understand a credit report and how that
information can be used in the hiring decision," says Armour. "Their answers
are always very weak and unless they see a bankruptcy in the report, they do
nothing with it."
Another reason less-than-ideal credit is unlikely to impair
your being hired is because so many successful people have had financial
problems. "I once observed a fellow who had gone bankrupt being hired for a key
financial role," says Armour. "He was brilliant, and the company felt the
bankruptcy was a life learning event."
Attorney Sonya Smith-Valentine, credit reporting expert and
author of the forthcoming book "How to Have a Love Affair with Your Credit
Report" agrees, saying many people over worry about their reports. "One blemish
won't disqualify you. Employers aren't expecting it to be 100 percent perfect."
Truth: Your checkered credit history may be ignored.
Myth No. 4: Employers use credit checks to discriminate.
According to Smith-Valentine, a driving force behind credit
checks is litigation protection. "If an employee does something allegedly wrong
and they get sued, the attorney will get their file," says Smith-Valentine. "If
the company did not do an appropriate background check, they can use it at
Resource Management report affirms Smith-Valentine's assertions: Companies conduct credit background checks most
often to offset theft and embezzlement, and after that to reduce liability for
"The reason I check credit is that employees of our
foundation are representatives of our founders, and we each have a fiduciary
responsibility," says TyAnn Osborn, director of human resources for the the
Michael and Susan Dell Foundation. "I'd rather be in the position of not hiring
someone because of what I found than having to explain why I did, and they did
Be aware though, that in
the future, companies may even be prohibited from accessing your report at all
if a bill currently in Congress -- the Equal Employment For All Act -- becomes
law. The bill would amend the Fair Credit Reporting Act to limit
employers' ability to check credit reports and to use them against prospective
and current employees.
Truth: Employers pull reports to protect themselves.
Myth No. 5: All negative information is bad. Truth: Some is more alarming than
While a lender may balk at a skipped credit card payment, the
Human Resource Management report found that employers are most negative
about you being sued for a debt and that results in a monetary judgment (a
concern because there could be wage garnishments they would have to deal with) Next
worst? Not paying your bills and having them land in collection.
"One late payment to Columbia House Music back in 1988 doesn't
concern me; however, I did have a candidate with multiple foreclosures and a
string of late payments," says Osborn. "Over a period of time, it represented a
series of poor decisions and lack of judgment. That did concern me, and
ultimately we did not extend an offer."
Large, outstanding balances can be adverse too. "I am
interested in the applicant's ability to pay their debt based on the salary
that I am going to offer," says Desbarres. If their monthly payments are too
big, "that's a sign of financial duress and a risk factor for committing
Truth: Some credit report information is more alarming than
Myth No. 6: Employers don't care about your reasons for having
Prior to your credit report being checked (and you'll know,
as you have to give permission), disclose problems quickly. Eighty-seven
percent of organizations report that they allow job
candidates, in certain circumstances, the chance to explain results, according to the Human Resource Management study.
"It's much better that I hear any potential derogatory
information from the applicant. I'm going to find out about it anyway, and if I
feel that you are trying to hide it from me, then I am going to wonder what else
you are hiding," says Desbarres.
Solid explanations help, assures Desbarres. "Sometimes
unfortunate things happen to good people. If you can give me a plausible explanation about why this derogatory
information should not be a cause for concern, I'm more than happy to hear it.
Remember, I've already made the decision that I want to hire you!"
Truth: They care a lot.
Finally, if you have fabulous credit and are counting on it
giving you an edge, forget about it. A mere 9 percent of recruiters said that a
positive credit background check is an influential
factor in hiring decisions. It's nice, but the candidate with the firmer
handshake and superior credentials will probably join the payroll.
See related: Resources for people with bad credit, Credit checks for job applicants become more common, States weigh limits on credit checks for employment, States stepping up to limit pre-employment credit checks
Published: April 25, 2011