States are Finally Getting the Right Idea by Limiting Credit Checks on Job Applicants

Job applicants bristle at the request for a credit check. There’s always the fear that if you have poor credit, you will be denied the job. Even if you do have good credit, a potential employer looking through your financial history feels like an annoying invasion of some privacy right you’re sure you’re guaranteed somewhere.

Up until recently, employment credit checks were allowed by most states. However, within the last three years, four states have passed laws limiting credit checks on job applicants, and at least 20 other states have bills pending to do the same. There have also been talks in Congress of implementing a federal law to limit employment credit checks.

So what’s the reason for this growing tend? I believe it’s actually been a long time coming, and the recent recession has been the tip of the iceberg pushing it over the edge. Below is my take on some of the major arguments for limiting employment credit checks:

Argument One: “First and foremost, credit checks don’t really reveal an applicant’s ability to do the job well, or reveal an applicant’s likelihood of committing fraud on the company.”

Companies cite impressive figures showing how employee fraud, theft, and lying are real concerns. But this doesn’t make up for the fact that there haven’t been any studies confirming the correlation between poor credit and job performance/company security. In fact, there have been lots of studies confirming just the opposite. If companies are concerned about weeding out these types of applicants, then I agree with many that looking at the criminal record would be a better way to gauge employee behavior.

Furthermore, credit reports are just an amalgamation of numbers, and they don’t give any of the back-story behind the data. What I mean is that often times, applicants will have a very good explanation for their poor credit, yet none of this would be reflected in the credit report. For example, poor credit may not always be due to irresponsible or ignorant behavior. Instead, people may have poor credit due to unfortunate events beyond their control, such as medical debt or a divorce. Yet employers would know none of this if they simply thumbed through the report.

Argument Two: “The recession and economy demands it.”

As I mentioned earlier, I believe the recession was the impetus for many states limiting credit checks. The reasons for this are probably multifold, but they all start out with the idea that now more than ever, many people have poor credit.

This results in credit checks being less helpful than before, as they don’t do as much to differentiate who the “bad guys” versus “good guys” are. Second of all, it’s kind of a Catch-22: if credit checks stop people from getting jobs, then unemployment will cause these people to further worsen their credit. There’s no way to break the cycle, and with the economy going the way it is, we can’t really afford to have so many people veering down this path.

Argument Three: “Laws limiting credit checks are not all-encompassing.”

Granted, this is not really an argument for limiting credit checks, but I thought it was worthwhile to point out how these state laws are actually being executed. These laws show that just because you limit employment credit checks, it doesn’t mean that you have to get rid of them altogether.

Most states limiting employment credit checks have carved out exceptions for job positions that are finance-oriented or demand a greater amount of security. For example, Oregon exempts many banks and credit unions from the limit on credit checks. Illinois, another state limiting employment credit checks, exempts debt collectors, insurance agents, and several government agencies. Thus, the laws are pretty reasonable, and recognize cases where employment credit checks really are necessary.

In conclusion, I understand that for many employers, credit checks are just one piece of the puzzle, and they don’t use it as the definitive factor in evaluating job applicants. (In fact, if they did, it would be illegal, unless the credit check revealed attributes that were critical to the job function). I guess employers are just saying, in a roundabout way, that they don’t have enough information about job applicants, so issuing credit checks helps. But if this is the case, then I think the negative aspects of using credit checks on job applicants outweigh the benefits. As I said earlier, I think that in most cases, credit checks reveal very little useful information about a potential employee.

Employment credit checks have always been one of the more controversial issues in employment background checks, which is already a controversial issue in itself. What is interesting is to see what will happen once the recession is over (which it will end, at some point). Will this trend to limit employment checks keep growing, and will the laws already in place stay once the recession is over?

Perhaps if we lived in a world where almost everyone had perfect credit, and it was only the exceptional person who truly had bad credit, then employment credit checks might actually reveal something useful and make more sense. But as much as I would like to see that day come, I’m pretty sure it won’t be happening anytime soon.

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4 Responses to “States are Finally Getting the Right Idea by Limiting Credit Checks on Job Applicants”


  1. 1 Tim

    Well I think this is a great idea. It’s hard enough finding a job as it is, but adding a credit check on top of a drug test, background check and the interview itself is ridiculous. My credit history is not any of my employers’ business, whether it’s good or bad.

  2. 2 Ron Congress

    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.

  3. 3 Donna Mia

    @Tim: I agree. Employers already have so much access to our personal information, do they really need to run a background check on top of it all? Employers aren’t going to stop running background checks, job applicants aren’t going to refuse them, unless the law does something about it.

  4. 4 Melissa

    I disagree about it not being definitive. How can you possibly know the weight that an employer will attached to a credit check? This is impossible to prove. It’s like age discrimination.

    I KNOW that I have been a victim of age discrimination, but when you go to EEOC and file a complaint, they tell you it is almost impossible to prove that someone was denied a job or promotion because of age.

    I also read on other sites that an employer must ask permission to run a credit check. I have never been asked. It is probably in the fine print on the application and people are unaware that this is being done.

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