by Paul W. Barada
Monster Salary and Negotiation Expert
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Significantly more companies are using credit checks as part of their standard preemployment screening process. The increased need to be more careful is understandable, but how companies are doing this is questionable.
Ever since the explosion in negligent-hiring litigation began around 1990, numerous employers have recognized the importance of demonstrating that they do some sort of background check on candidates for employment. Unfortunately, many companies are more interested in covering their backsides than making sure the right person is hired for the job. Many firms waste time and money doing things like credit checks instead of talking to business and professional references who actually worked with the candidate to determine how well he will fit the position and organization.
During my 20-plus years in the reference-checking business, I have been amazed repeatedly at the number of companies who rely on nothing more than a credit check as their screening tool to determine employability. All a credit check will ever reveal is whether or not bills are paid on time.
There are only two valid reasons to ever bother with a credit check: one, if the position to be filled, such as a CFO, requires it; or two, if there is some reason to believe a candidate's financial situation could adversely affect future job performance.
Otherwise, doing a credit check is a complete waste of time and money, because it will reveal absolutely nothing about past job performance. What possible difference could it make whether or not a candidate pays his Visa bill on time if he can't get along with people in a work setting? A credit check won't tell a prospective employer anything about interpersonal skills, nor will it even remotely address skills, level of experience, management style, strengths, weaknesses, career-development needs or much of anything else that relates to past job performance.
So why do so many companies still rely on credit checks? Because it is a cheap, lazy way to be able to claim some sort of check was done before the candidate was hired.
The Results
Some job seekers wonder if their credit history can impact the salary being offered. I've never heard of an employer adjusting the compensation offered because of a credit report's content. However, I have seen job offers withdrawn because of what a credit report reveals.
On the other hand, employers have to show reasonable care was used during the hiring process to avoid negligent-hiring litigation. What constitutes reasonable care varies depending on the position being filled and the potential risk of harm to innocent third parties. Therefore, does it make any sense to do just a credit check for a brain surgeon? Of course not. While doing a credit check on a candidate for a cashier position might demonstrate reasonable care, it certainly would not be acceptable for a home healthcare provider position.
Your Rights
The Federal Fair Credit Reporting Act requires prospective employers to tell you in advance if they intend to have a credit report done on you. You also have to give the employer your express permission to run the check. Once the report is done, you have the right to review and dispute any of the information if you believe it to be incorrect or false. It is up to you, the job seeker, to request a copy of the credit report if you'd like to review it. Be aware that you must make this request within five days of the employer running the report.
Reference checks, as opposed to background checks, involve talking to business and professional references with whom the candidate has worked on a daily basis within the last five to seven years. Done properly, they are dialogues with those most familiar with the candidate's past job performance. A background check, on the other hand, is nothing more than verifying job titles and dates of employment.
If you're concerned about what a credit check will reveal, you may want to read The Guerrilla Guide to Credit Repair: How to Find Out What's Wrong with Your Credit Rating -- And How to Fix It.