You’re Hired! But Not With That Credit Score

As we move more into the New Year, the job market gives some signs that it may finally be starting to pick up the pace.

According to Career Builder’s annual job forecast, 23 percent of the employers who participated in the survey plan to hire full-time, permanent employees in 2012. The study was conducted by Harris Interactive, and included more than 3,000 hiring managers and human resource professionals across industries and company sizes. With nearly 1 in 4 hiring managers planning to hire, this requires screening of the huge pool of potential job applicants to fill these positions.

Unfortunately, many of these job candidates have faced financial hardships during the Great Recession and have some dings on their credit reports. Since SHRM recently reported that 60 percent of employers said they checked credit histories for some or all job applicants, that can mean a rejection for a potential applicant who has experienced delinquencies, charge offs, foreclosure, or bankruptcy.

Let candidates have a chance to explain

Hiring managers should consider giving a candidate the opportunity to explain any negative information on a credit report, and make a case-by-case decision because of the impact of the economy. An applicant who has been out of work for an extended period of time and has fallen behind on some of their unsecured debt may still have the potential to become a hard-working employee.

However, a candidate who has just been living beyond their means and shows a pattern of poor credit management may need to be rejected, since employees who are financially stressed will be distracted and will ultimately use work time to deal with their financial issues.

Voluntary Benefits Magazine reports that up to 20 hours, per employee per month, could be lost as wasted man-hours and reduced employee productivity because of employees dealing with their financial problems during working hours. The conventional wisdom in using credit histories in hiring decisions is that a bad history of paying bills is a pretty good indicator of an employee’s reliability.

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More states restricting background checks

However, several states have recently passed laws restricting the use of credit reports as part of the hiring process. California has new laws that took effect on January 1, 2012 and that is similar to existing state laws in Hawaii, Maryland, Washington, Oregon, Illinois, and Connecticut. California’s code revision now limits when private (and public-sector) employers, except for financial institutions, can lawfully use consumer credit reports in connection with hiring and personnel decisions, with just a few exceptions.

If you are a hiring manager who is not located in these restrictive states, pay close attention to the story that a credit report can tell you, so the new hire you do choose will become a productive member of your team.

This was originally published on the Financial Finesse blog  for Workplace Financial Planning and Education.

Linda Robertson is an experienced financial planner with FinancialFinesse.com, the nation’s leading provider of unbiased financial education programs to corporations, credit unions and municipalities with over 400 clients across the country. Her focus is on retirement and tax planning, and her background includes positions with NationsBank, H & R Block, and Metropolitan Life. Contact her at linda.robertson@financialfinesse.com .

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3 Comments on “You’re Hired! But Not With That Credit Score

  1. Having moved here recently from Canada (according to some a hotbed of socialism/ communism), I love it here, but I find it astonishing the things that a potential employer is allowed to do to private citizens. Even though I don’t take drugs, it feels more than a little like an invasion of my privacy that my employer demands a drug test for an office job with no heavy equipment in sight. Same with credit scores. In Canada (aforesaid hotbed of socialism/ communism), this is considered a serious infringement on my freedom and my privacy (what people in the land of the free are supposed to enjoy in liberal quantities), making it a lot harder for people who have hit temporary hard times to pursue life, liberty and the pursuit of happiness.

  2. With all due respect what planet have you been on for the last year? With the EEOC breathing heavily down employers back for allegedly using credit checks without business necessity or job relevance and several states pasing laws to serious restrict this process most prudent HR Managers have started re-examing this process. Also the SHRM poll you reference clearly stated that employes only 13% conducted credit checks on all job candidates and 47% on Select job candidates. To state that 60% of employers conduct credit checks is very misleading. In my opinion, any HR Manager that includes credit checks on all applicants or without tying to job relevancy is exposing their company to unwarranted risk.

    Barry Nixon, SPHR
    PreemploymentDirectory.com

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