Credit Reporting Agency Fights to Preserve Use of Credit Checks during Employment Background Checks

By Lester Rosen, President of ESR & Thomas Ahearn, ESR Staff Writer

With 15 million workers currently unemployed according to recent Department of Labor statistics, it has been argued that job applicants risk getting caught in a Catch-22 situation where they have bad credit because they cannot get jobs but cannot get jobs because they have bad credit.

As a result, states such as Oregon, Washington, and Hawaii have already limited the use of credit reports for employment screening by enacting bans on credit checks during background checks unless the information directly relates to occupational qualifications.

However, the Chicago Tribune reported that one of three major credit bureaus that collect financial information on Americans – Chicago-based credit reporting agency TransUnion  is fighting to preserve the use of credit checks during employment background checks.

TransUnion defends credit checks as a way for employers to protect themselves against theft and fraud, since employees with poor credit history may be more likely to engage in unethical or illegal behavior, especially in jobs where they are involved with finances, according to the Tribune article.

Along with the other two large credit bureaus Equifax and Experian, TransUnion helps employers, financial institutions, landlords, among others to use credit information to guide their decisions about hiring, extending credit, lending money, and housing.

Although a recent survey from the Society for Human Resource Management (SHRM) found that 60 percent of employers performed credit background checks on all job candidates or on selected job candidates, that statistic can be misleading since of the firms that use credit checks, it appears the use is generally selective. The survey revealed that 47 percent of the employment credit reports were used only on selected candidates for positions that presumably involved access to assets, cash, or sensitive information.  Only 13 percent of employers used credit background checks across the board on all job candidates.  In addition, 40 percent of employers surveyed did not conduct any credit background checks. It could be argued that the alarm over the use of credit reports has been exaggerated.

In addition, given the fact that often times past employers will not give a reference beyond dates of employment and job title, employers may well be in need of additional tools when hiring for sensitive positions. 

Critics find credit checks during employment background checks discriminatory and bills restricting the practice have been introduced in the U.S. House of Representatives and many states. Even some background check firms advise caution with credit checks.

Employment Screening Resources (ESR), a leading national online background check firm, recently released its third annual Top Ten Trends in the Pre-Employment Background Screening Industry for 2010, which identified new trends making a difference as well as old trends that have evolved as the screening industry matures.

The first of the Top Tentrends ESR tracked for 2010 is the increased focus on whether credit reports used during background checks are discriminatory. ESR advises employers to approach credit reports with caution during background checks and to articulate a clear rationale as to why a credit report is related to a particular job. Employers should also be aware of the potential for errors in credit reports since information could be incorrectly reported or the applicant may be the victim of identify theft which can lead to false data.

On the other hand, ESR warns that hiring an employee that handles money, makes financial decisions, or has access to private data without running a credit reports during background checks could result in allegations of negligent hiring if a theft occurs.

Lester S. Rosen, the CEO of Employment Screening Resources, was quoted in an article on MSNBC as saying that “if a new worker is to have access to large amounts of company cash or financial systems, it’s only prudent for a hiring manager to find out if the applicant has a pile of unpaid debts.

Rosen went on to say: “If an employer hires an embezzler and did not do a credit report in a sensitive position and the employer was then sued for negligent hiring, the argument would then be: How stupid were you for not running a credit report?”

Though many employers run credit checks on some applicants, relatively few are turned down for a job because of bad credit, according to ESR’s Rosen. “It takes something pretty horrendous in the credit report to reverse a decision that they are vested in,he says.

One more thing to keep in mind, according to Rosen, is that it is an urban myth that employers receive a “credit score,” the three-digit numerical expressions  such as FICO based on statistical analysis of a consumer’s credit files. Employment credit reports  which are different than credit reports used for lending  do not contain a credit score.

For more information on credit reports used during background checks, read a white paper prepared jointly by LexisNexis and Employment Screening Resources (ESR) , “The Use of Credit Reports in Employment Background Screening:  An Overview for Job Applicants“ at