Credit Checks in Employment Selection

Are you conducting credit checks as part of your employment selection process? The recent Professional Background Screening Association (PBSA) survey reported that while 94% of employers conduct some type of background check on applicants only 14% conduct credit checks. This number is down from 16% in 2018 PBSA survey.

Much of the use of employment credit checks has been driven by the belief by many managers that a credit check provides insight into a candidates’ character, ability to manage finances and can help reduce risk of fraudulent behavior. Despite these beliefs, there is little research and evidence about what credit checks actually reveals to employers about a prospective hires’ future job performance. In contrast, there is a growing body of research that shows:

  • Poor credit has more to do with personal misfortune like household unemployment, lack of health coverage, and medical debt.
  • People of color are disproportionately likely to have poor credit which can result in higher screening out rates which may be deemed as discriminatory hiring.
  • Credit reporting errors are commonly cited as a contributor to poor credit. 

Overall, there is substantial evidence that employment credit checks, in general, constitute an illegitimate barrier to employment unless they have a direct nexus to the nature of the work to be performed in the job. Also, with the current employment market situation employers may pass up good talent by unnecessarily using credit checks. Employers should consider these factors before using credit checks as a part of their employment background check process.

Read more about the challenges associated with credit checks.