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July 22, 2017

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Myth Buster: Credit Scores Not Used for Employment

An issue recently in the news is the use of credit reports when it comes to hiring. Of particular concern to job applicants are suggestions in the media that employers are using “credit scores” to make hiring decisions.

Even though credit reports are utilized by some employers for particular positions, a “credit score” is not a tool used for pre-employment screening. For pre-employment credit reports, the credit bureaus use a special reporting format that leaves out the credit score, along with actual credit card account numbers, and age. Credit scores are not valid predictors of job performance and therefore are not part of a pre-employment screening.

Employers seek credit reports on job applicants for a variety of reasons. Some employers are concerned about hiring persons who cannot manage their affairs, or whose monthly debt payments are too high for the salary involved. Many employers limit credit reports to management and executive positions, or to positions that have access to cash, assets, a company credit card, or confidential information. For example, employers may be justified in running credit reports on bookkeepers or others who handle significant amounts of cash.

However, employers should approach the use of credit reports with caution and have policies and procedures in place to ensure that the use of credit information is both relevant and fair. For most job applicants a credit report is the one pre-employment tool that feels as though it encroaches on a zone of privacy.

An employer should first determine if there is a sound business reason to obtain a credit report. Unless the information in a credit report is directly job-related, its use can be considered discriminatory. For example, running a credit report for an entry-level person with low levels of responsibility or no access to cash is probably not a good practice. Unnecessary credit reports can discourage applicants from applying, and running mass credit reports on all applicants, regardless of the position, can have the effect of discriminating against certain protected classes. In addition, employers should avoid making negative hiring decisions on information that is old or relatively minor. Finally, employers need to realize that a negative credit entry could be due to something that is not job-related, such as a dispute over a debt, or medical bills.

For a more details on the use of credit reports and employment, see the ESR special report: “Credit Reports and Job Hunting”

-Lester S. Rosen

Lester S. Rosen is an attorney at law and president of Employment Screening Resources, www.ESRcheck.com, in Novato, CA, a pre-employment and credentials verification firm. He can be reached at lsr@esrcheck.com, or at (415) 898-0044.