Credit checks becoming a lower priority for employers

The significant downturn of the economy in the past few years has caused many families and individuals to suffer from a greater number of serious financial issues and debt problems. Confronted with such adverse economic conditions, many consumers find themselves unable to pay off their mounting debts and loans. Accordingly, this situation has gravely affected consumer credit rating. Given the importance of maintaining good credit standing, borrowers fear that having bad credit might hurt their chances of getting a job. Fortunately, a recent survey released by the Society for Human Resource Management indicates a decrease in the use of credit checks as part of the employment application process.


Survey data reveal that 53 percent of employers do not perform credit background checks when screening job applicants. That is surprisingly low compared to the 60 percent who used credit background checks in 2010. Forty five percent of respondents indicated that one of the primary reasons for credit checks is to greatly reduce the occurrence of theft in the workplace. In fact, according to the American DataBank, companies lose more than $120 billion a year because of employee theft. On the other hand, 22 percent of respondents indicated that the reason for credit checks is to decrease employer liability for negligent hiring.
When the applicant’s credit is undesirable, and the employer wants authorization to access his credit report, the applicant should continue with the process. However, employers do not automatically rule out applicants who fail a credit check. Study reveals that 80 percent of employers who use credit checks as a screening tool for applicants have hired job-seekers who had unhealthy credit reports, while 64 percent of employers surveyed said that they allowed candidates to explain why their credit reports contained negative financial information before hiring decisions were made.

In another survey, it has been found that the number of employers who do not conduct criminal background checks has also significantly increased, from 7 percent in 2010 to 14 percent in 2012. This huge decline in background checks may be accounted to the fact that an increasing number of firms are finding most of this information to be irrelevant compared with the potential employee’s experience and skills.

According to Mark Schmit, SHRM’s vice president for research, human resources professionals are looking more closely at the job-relatedness of these practices. Schmit further added that as an outcome, a much smaller number of employers conduct background checks, and checks are usually done for specific jobs or to comply with the law.

Credit checks are most likely to be conducted if the job involves the handling of finances or is in the law enforcement field. Moreover, they are also likely to be done on employees who will perform fiduciary duties or those who will have access to extremely confidential information. Credit and criminal background checks are employed mainly at the end of the hiring process. In fact, the survey’s results also found that 91 percent of credit checks are performed after offers of employment have been accepted.

Stricter government rules and regulations on the federal and state levels are also a dominant factor restricting employers from running credit checks on job applicants.