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Should You Check a Job Applicant's Credit History?

Should You Check a Job Applicant's Credit History?
Credit: danielfela/Shutterstock

Earlier this month, I met with a recruiter about an independent contract gig at a prestigious bank in town. At the end of the interview, the recruiter told me he'd check my criminal background history. He then asked me if it was OK to check my credit.

I later learned background credit checks were standard for the financial industry. CNN reports employers include credit checks in their due-diligence process to prevent fraud and embezzlement.

In a NerdWallet blog post, author Lindsay Konsko notes that credit histories ― not your score ― may be seen as a reflection of your personal trustworthiness and responsibility. That's why 47 percent of employers, even outside of the financial industry, check applicants' credit reports, according to the Society for Human Resource Management.

However, when credit histories are used to compare candidates, credit can be used to judge an applicant's ability (or inability) to work. An applicant's self-worth then reflects his or her financial background just as much as, if not more than, their education and professional experience. [See Related Story: 10 Job Interview Questions That Aren't Legal]

If your businesses uses credit checks in the hiring process, there are some things you need to consider before using it to evaluate a candidate. First, there are plenty of circumstances where credit doesn't affect an individual’s ability to work. I was a victim of identity fraud myself, and it can happen to anyone.

Your identity can even be stolen by family members. Editor and publishing professional Alaina Leary said that, at age 17, a family member took money out of a checking account that she did not have.

The same family member started opening credit accounts in her name without paying them off. Leary was hit again with identity fraud two years later when she was 19, when someone used her information to open another account and charged it $1,000.  Now whenever she applies for a job with a credit check, she says she feels so uncomfortable that she'd rather not explain her financial history to a prospective employer.

Similarly, freelance writer Lauren Friel experienced financial abuse at the hands of her ex-partner.

"Basically, [my ex] wanted to ruin my credit so I'd be dependent on him," she said. "I don't qualify for anything that's not offered by a loan shark."

Friel's ex had access to her personal information, which allowed him to open and max out credit cards in her name. He also screened her mail for anything from financial institutions, which he'd throw away immediately. Friel hasn't applied for a job that checked her credit, but would be uneasy if a potential employer did so.

This credit-check process is completely legal in most of the United States. However, some states have deemed it unlawful. Demos reports the states of California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington have all enacted statewide bans on employment credit checks, in addition to some major cities such as New York City and Chicago.

If your company wants to "level the playing field" for candidates, one alternative to a credit check is fact-checking a resume. According to CareerBuilder, 7 in 10 employers spend less than 5 minutes reviewing a resume. Additionally, more than 1 in 2 employers have caught a lie on a resume. Some real-life resume falsehoods include claiming to be a former CEO of the prospective company the candidate applied to, being a Nobel Peace Prize winner, and having a degree from a nonexistent college. (Yes, really.)

Even if your area hasn't outlawed employment-related credit checks yet, you're better off fact-checking a resume before judging candidates based on their credit history.

Danielle Corcione

Danielle Corcione is a freelance writer. To learn more about their work, visit their website. They also run a blog called the Millennial Freelancer and a newsletter Rejected Pitches.