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The Washington Independent

Are Employers Performing More Credit Checks on Job Applicants?

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

Candice Burns
Last updated: Jul 31, 2020 | Jul 26, 2010

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.

Candice Burns | Candice Burns has worked in the real estate industry for a long time. She understands the importance of a home for long-term happiness and has dedicated her career to placing people in the home of their dreams. Candice's passions for helping others during difficult times and a strong interest in high-end, luxury homes drove her to explore real estate. She's been in the real estate business for ten years and has helped over 3,500 people find homes during that period. She earned a bachelor's degree in business administration from the University of Los Angeles. She's worked with some of Los Angeles' most prestigious real estate firms.


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