Employment screening expert Lester Rosen was quoted recently in U.S, News and World Report on an article entitled:  Should Your Credit Report Cost You a Job?


Mr. Rosen, who is President of Employment Screening Resources, commented upon best practices when it comes to obtaining employment credit reports.  Mr. Rosen has also been quoted on the same issue in other national publications, such as the Christian Science Monitor and USA Today.

To summarize briefly, Employment Screening Resources advises employers to approach credit reports with caution when it comes to background checking, and to articulate a clear rationale as to why a credit report is related to a particular job.  Employers should also be aware that there is the potential for errors in credit reports, and that negative entries may well not be a valid predictor of job performance.  For example if there is an illness in the family and credit cards are used to pay medical bills, or there has been a long period of unemployment, a consumer’s credit report may show a large outstanding debt that may not affect suitability for employment. In fact, an overly board use of credit reports could lead to claims of discrimination if there is a disparate impact on protected groups.

On the other hand, hiring a person that handles money or other people’s private data without running a credit reports could result in allegations of negligent hiring if a theft occurs and a credit report as part of a background check would have lead to relevant information. Embezzlement, internal theft and identity theft are significant problems in the U.S.

One thing to keep in mind — it is an urban myth that employers receive a credit score. Employment credit reports simply do not contain a credit score since there is no evidence of a connection between a credit score and employment.  On the other hand, employment credit reports do contain a credit history, which will tell an employer if an applicant pays on time, or has such a large monthly debt that it raises a red flag if a person is to be put in charge of cash or assets or placed in a fiduciary position.  In addition, there are limitations on using a bankruptcy for employment, since a person that goes through bankruptcy is entitled to a ‘fresh start’  Two states, Hawaii and Washington, have passed laws regulating the use of credit reports for employment and more states are apparently looking at similar rules.  For more information, see: https://www.esrcheck.com/articles/Credit-Reports-and-Job-Hunting.php .

Another aspect of the use of credit reports are the vastly increased regulations imposed by the credit bureaus on background screening firms and employers, in order to protect privacy and counter identity theft. Legitimate screening firms that are in compliance with the contractual obligations set forth by the credit bureaus are required to essentially do a background check on employers that want credit reports.  This can include on-site inspections by third party agencies of the employer’s premise, as well as checking bank and trade references and other steps to ensure the employer is legitimate, has a permissible purpose and meets the guidelines set out by the credit bureaus.  Certain businesses, such as home based operations, or businesses that share space with prohibited users cannot qualify for credit reports. In addition, the new ‘Red Flag’ rules require employers to have a written policy and procedure in place to deal with address discrepancies.  See: http://ftc.gov/os/fedreg/2007/november/071109redflags.pdf

Although ESR assists employers in navigating the process and supplies a sample Red Flag policy, small and medium businesses (SMB) often find that requesting a credit report adds a significant layer of complexity to the process.  Other searches typically done as part of a background check, such as criminal records, do not carry these added complications. Many SMB avoid these headaches by simply requesting that an applicant obtain their own credit report and present it to the employer.  This is easily done since every consumer by federal law is entitled to one free copy of their credit report from  each of the three major credit bureaus yearly from  https://www.annualcreditreport.com/  However, employer must still use caution to ensure that the use of credit reports is fair and non-discriminatory.

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