The Use & Misuse of Employment Credit Reports

employment credit reportEffective October 1, 2011 Connecticut joins Maryland, Illinois, Hawaii, Washington, and Oregon as states that have banned the blanket use of employment credit reports as a tool in the hiring process.  I think this will be a growing trend with other states. We really should not be surprised that states are beginning to ban or significantly restrict the use of employment credit reports.  There has been a lot of misuse of credit information in the hiring process.  The background screening industry has not done enough to educate our clients about the proper use of credit information.  

The use of credit information, just like criminal records checks, should be based on a business necessity.  Every single time I have an employer indicate they want to use employment credit reports, I ask the following questions (yes, I often convince the employer to spend less money with us but it protects them and their applicants):

  • Do we have a business necessity?  Probably if you are hiring a CFO;  probably not if you are hiring a custodian.  Credit reports should not be used as a blanket screening tool.
  • What is it in a credit file that would cause you to decline employment?  Many Americans, like our government, have a poor credit rating and high revolving debt so is that alone an indication they will be a bad hire?  Not necessarily.
  • Do you understand that credit reports contain lots of errors?  The three credit bureaus can have distinctly different information on an applicant. Per the FACT Act, I check my credit reports once a year.  Thank goodness because a few years ago I found a collections that belonged to another person with the same name.  

My goal is not to dissuade our clients or potential clients from using employment credit reports.  However, I do want them to understand they must be responsible in using credit information.

Once you have made the decision to access financial information for certain positions, you need to understand the key differences between a full credit report and an employment credit report.  A full credit report should NEVER be used as a tool in the hiring process.  Federal law allows for a modified version of a credit report to be used for employment purposes.

Here are the main differences.  Employment credit reports:

  • Do not contain a credit score which is a credit lending model not an employment scoring model.
  • Remove account numbers
  • Remove year of birth
  • Remove references to your spouse

The bottom line is the use of employment credit reports can be an extremely important and a critical tool in the hiring process.  It does require a well articulated policy.

Contact us today for an evaluation of your use of employment credit reports.