rssAre Employers Performing More Credit Checks on Job Applicants?
Monday, July 26, 2010 at 2:52 pm
- 53 Comments
It has become recession-era gospel: Employers are performing more credit checks to screen out job applicants — an unfair and sometimes banned practice, and one making it harder for indebted or impoverished job seekers to find work. But just because it is gospel, reported over and over again, does not make it true.
The New York Times reported on the phenomenon back in April, focusing on credit-check companies promoting their services to hiring businesses and on new regulations to prevent employers from looking into applicants’ financial backgrounds. The article says:
With millions of Americans nursing damaged credit reports after a bruising recession, some lawmakers are seeking to limit the use of credit reports as a factor in hiring. Legislators in more than a dozen states have introduced bills to curb the use of credit checks during the hiring process, and three states have passed such laws.
Dozens more articles and posts have elaborated on the phenomenon since. On July 22, CNN ran a story entitled “Job Seekers’ Latest Hurdle: Credit Checks.” The first lines of the article read:
Falling behind on your bills? It could cost you a job. An increasing number of employers are using credit checks to screen potential job applicants. So missed payments on your mortgage, car or credit card could keep you from getting hired.
All of these stories rely on studies by the Society for Human Resource Management, or SHRM, showing that employers are more and more often turning to credit checks to screen applicants. The CNN story notes: “60 percent of employers are using credit checks when filling at least some of their openings. Only 35 percent reported checking credit in a 2003 survey, and only about 13 percent did so 1996.”
But such bold conclusions come as a surprise to the SHRM itself. The organization says it has no longitudinal studies about the percentage of employers performing credit checks — and that comparing the 1996, 2003 and 2009 studies is comparing apples to oranges.
The questions differ in the three years — meaning comparing them is not rigorous and is potentially misleading. In a 1996 workplace violence survey, SHRM asks employers, “Does your organization thoroughly investigate the background of potential employees? If yes, how?” It then supplies several options and lets the employer pick the ones it used. 19 percent — not 13 percent — of employers say they use credit checks.
In a 2003 workplace violence survey, SHRM tweaks the question — not asking whether the employer “thoroughly” investigates backgrounds — and instead just wondering, “How does your organization investigate the background of potential employees?” 35 percent say they use credit checks — the sixth most popular of seven options.
Then, in 2009, the question is totally different. In a background checking survey released in 2010, the SHRM directly asks: “Does your organization or an agency hired by your organization, conduct credit background checks for any job candidates by reviewing the candidates’ consumer reports?”
About 60 percent of employers say they use consumer reports — overall. But 40 percent of employers say they never use them, and 47 percent of employers say they use them only for select positions. (That means another way to phrase the result would be, “87 percent of employers say they do not use credit checks for most employees.”) Later questions reveal the jobs employers credit-check applicants for: high-level executive gigs or jobs where an employee has access to company coffers.
Point being, the stories about employers using credit checks to eliminate job seekers are relying on a misreading of the data — data that is inconclusive on the question. I am sure that many employers use credit checks to unfairly disqualify potential candidates. But these stories should note these trend stories are based only in anecdotes, not in statistics.
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53 Comments
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Comment posted July 26, 2010 @ 8:38 pm
It's much easier and cheaper to perform credit checks now than it was 10 years ago, so I think that is a big part of it. My husband had a credit check when he applied for a machinist job. I can understand it for people working directly with money (sales, banking etc) but I don't understand why an old student loan you are slowly paying off should be part of a decision for a job where there is no risk of theft, especially when you have to provide your own pens.
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Comment posted July 27, 2010 @ 7:13 pm
You expect an employer to tell the truth? Give me a break! The checks are cheap a dirt to run, $8, so it't cheaper than using man hours to evalute candidates. It's just a way to cull the herd of applicants since there are so many because of the recession. If employers tell the truth which is they run them on everyone, they know the laws will be changed to stop the discrimination. If there is no audit, no way to verify . . . whatever they say is total BS! SHRM is battling in favor of doing the checks so they are going to lie of course.
In survey after survey, including a recent MSNBC survey, more than 90 percent of Americans say that workplace discrimination based upon someone’s personal credit report is wrong and should be illegal. ZERO statistical evidence exists to tie bad credit reports to fraud! It’s already illegal in 3 states and HR3149: The Equal Employment for All Act would make it illegal in every state, but most Americans don’t even know the legislation exists. Please support the overwhelming will of the people and the rights of highly qualified American workers to compete on a level playing field during this horrible economic disaster. Join our FB PAG at: http://groups.to/h.r.3149 or shoot us an e-mail at hr3149@hotmail.com with”sign me up” in the subject line.
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Comment posted July 29, 2010 @ 4:05 am
Ron, this is an excellent article! I knew that this practice was going on and you have provided more information than anyone on credit checks in order to get a job. We really need to lobby this bill HR3149 and shed some light on this discriminatory matter. Like so many Americans, I am also unemployed. The government is one of the biggest perpatrators in doing this. I applied for various jobs with the government and was told that they do run credit checks on everyone. Since the Patriot Act was enacted, the government and most businesses including temporary services are using this as a weed out process. Based on this practice, the majority of unemployed workers will never find employment again. The extension bill was held up because some in Congress felt that the unemployed was just taking advantage of the situation. In actuality, they know that we can not find jobs because of our bad credit ratings. Again, thank you for the information. I will sign up for your e-mail. CW
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Comment posted July 30, 2010 @ 11:07 am
Why do you “understand” credit checks for sales and banking workers? Why should a machinist with bad credit be given the assumption of ethical job performance, while a sales or banking worker with bad credit is not given the same consideration? In neither case is there any empirical evidence which correlates the job performance and ethical behavior of ANY worker to low credit scores.
Comment posted July 30, 2010 @ 11:10 am
NO industry should be given an exemption from this legislation. Isn't it time that employers base their hiring decisions on past performance and NOT whether someone got behind on their bills due to the recession and circumstances outside of their control?
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Comment posted January 15, 2011 @ 11:05 pm
I think that the issue needs to be more clear. I am 25 year old social work student who has fallen on some hard times in the past. I am just now able to start repairing my credit. But my credit has no bearing on my ability to be hard working, honest employee. The issue is jobs that provide good pay and benefits, which I need. Every single company that I apply for now that I know provides benefits, even big retail chains, are requiring credit checks of potential employees
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