Credit Reports as Pre-Employment Background Checks

It should be no secret that with is economic downturn and slow recovery many job applicants have lousy credit.   Even those employment candidates who once had decent to excellent credit scores find themselves wanting, having been laid off or otherwise pressed for cash.   A bad economy can take you from upscale to downscale in a hurry.   If  you don’t believe me, just take a peek at “Real Wives of Orange County,” and you will find the formerly affluent are the currently hurting.

According to an article in the Los Angeles Examiner, if you have bad credit you will be denied a job.   Bad credit according to the article compounds an already bad to desperate situation for those who have had a tough go in this current economic crisis.   It is reported in the article that job applicants can refuse to submit to background checks, but if they do they will almost certainly be rejected for employment.   This is true.   The article also reports that if your background check does return with a lousy credit report, you will also be denied the job.   Well, yes and no.

The article also maintains that each time an employer runs a credit report you are penalized points on your FICO score.   This is not the case.   Simply put, if you are applying to buying a car or loan, yes after several applications then you will be penalized on your FICO score.   This is known as a hard pull.  But employment applications are a soft pull.  By law an employer is not allowed to obtain a credit report with a FICO score.   Employment credit reports are different.   There are no FICO scores listed.   Employment credit reports are especially coded so that the issuing service is aware that the credit report is designated for employment and not consumer considerations.

That being said, yes many employers will not relish hiring someone with funky credit.   A listing of accounts that have been charged off and put into collections is no way to win the hearts of  human resources.   But there are exceptions.   Employers or HR personnel will look at job applicants who were buried with medical bills, single parents especially, with a more favorable perspective.   Young job applicants who have been buried with college loans are also viewed more favorably.   But someone with a $1,200 charge off at the mall jewelry store will not be looked on as favorably.  This is especially true if the candidate is applying for a job in the financial sector.

California is considering legislation that prohibits employers from using are considering credit reports as part of their preemployment screening program.   The state wishes to exclude credit reports as part of the background checking unless the job applicant is in a managerial position and highly salaried.   The employer will be able to run the credit report is the candidate would have access to employee or customer financial or personal information.  If the candidate has fiduciary responsibility or travels, then the employer will also be able to run the credit report as a part of the overall background checking.

U.S. Congressional  Representative, Steve Cohen, (D-TN) and 26 other legislators are attempting to introduce legislation that would prohibit the use of credit reports as a preemployment background checks in most employment considerations.   I would assume the legislation would be similar to that being proposed in California and in place Washington and Hawaii.

To some degree, depending on the reasons, I would agree it is not fair that employment candidates are rejected because of their credit reports.   But then, not everyone is rejected out of hand.  Most employers are willing to consider the extenuating circumstances.  Most employers realize, as they have also suffered, that this recent and somewhat current debacle known as our economic meltdown took its toll on many responsible and diligent employees.   So by no means will bad credit cause the employer to dismiss your application.  Like most other aspects of job application, some of it is negotiable.