Why do employers pull credit reports?

Apr
17
2013

Collections--qmOf all the credit related topics I write about none of them (and I really mean NONE of them) stirs up more of an emotional reaction than the use of credit reports by employers. Employers, as you may know, are allowed to use credit reports as part of employment screening thanks to language in the Fair Credit Reporting Act. “Employment” is one of the permissible purposes as defined in that Federal act.

Some states have passed legislation restricting the use of credit reports for employment screening but none have outlawed the practice. Some states limit the practice to only certain types of positions with certain responsibilities, and with certain access to company information and assets.

Employes are allowed to pull credit reports for prospective employee screening as well as continued employment screening. This is not very well know. Most people believe once you get the job your credit becomes immaterial.  That’s simply not true. Your credit is always in play. Just ask a member of the military who is unable to get security clearance because a collection landed on his or her credit report.

Still, why do employers care so much about credit reports?  Can’t you learn about the potential quality of the employee by simply reviewing his or her resume?  Hardly!  Credit reports help to fill in the back story of an applicant by shedding light on what no resume can ever capture…responsibility traits.

The ability to properly manage your credit is an easy task for many and a not so easy task for some. Still, if you’ve got sterling credit then it speaks volumes of your responsible nature. This can not be understated when you’re being compared to other applicants for the same job.

Negative credit means you’re either irresponsible or unfortunate. One is fair, the other is unfair. Losing your job because the bank you work for is having a hard time beating Wall Street’s estimates is unfair.  Filing bankruptcy because you use credit cards to finance an unrealistic lifestyle is fair, fair, and fair again.

A lesser discussed issue regarding credit is the issue of garnishment. When you have defaulted debt, especially credit card debt, you stand a good chance of being sued for non-payment.  And, if you lose the lawsuit, and you will, then you’ll end up with a judgment on your credit reports. These judgments can eventually become garnishments, which will drag your employer into your credit troubles, unwillingly. Employers have other things to worry about than your garnishment problems yet the law requires them to withhold a portion of your paycheck to satisfy the judgment creditor’s claims.

As an employer it’s much easier to move on to a candidate who has better credit than you. With multiple people applying for every one open position, it’s not hard to find someone with better credit and equal qualifications.

JRU on 60 Mins SetCredit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

Comments

  • Kate Cleary
    June 26, 2013

    I just found out (and printed the verifiable proof) that my employer, six weeks after I was hired, pulled my credit report without my permission. I had not signed a single document for my current position other than a standard tax form. What rights do I have?

    Thanks,
    Kate

  • June 27, 2013

    Well, if that’s true then you may have an unauthorized access claim against them. But, do you really want to bring this up to your employer now? And, have you been damaged by their actions? If you got the job then the answer is probable no. Would you be willing to send me what you have (verifiable proof)? I’d love to take a look at it. John

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