Checking Candidates’ Credit: Good Idea?

To examine this more closely, we reached out to James Crumlin, a Partner in the firm of Bone, McAllester, Norton, in Nashville. Employment law is a specialty area of his.

Borrowman: I think many people would assume that a credit check would reveal useful information about a candidate’s trustworthiness and reliability. What’s wrong with that?

Crumlin: It really depends on the job function the person is interviewing for. If you’re interviewing for a securities or banking position, or one that involves the government, a credit check may be appropriate. The pitfall is that credit checks impact certain segments of the population more than others. There’s a disparate impact of using credit checks in the employment process.

Borrowman: Would you explain “disparate impact”?

Crumlin: That means it impacts one particular group more than another. In this case, women and minorities could potentially have lower credit scores than their white male counterparts. If so, using that particular tool of credit checks to decide whether a particular person gets employment could be problematic.

Borrowman: Is there a good rule-of-thumb for when a credit check might be appropriate?

Crumlin: Here’s the question you should answer: Is the information you will receive through the credit check essential to the job you’re trying to fill? If it’s not absolutely clear that it is, you’re better off using other forms of background checks.

Borrowman: For example?

Crumlin: You can check employment history, criminal conviction records, and references. If you can afford it, your best approach is to use a company that does background checks regularly as a service. They are best equipped to do the job right.

Borrowman: What if an employer wants to do the background check?

Crumlin: In that case, I always recommend five steps:

Identify the data to be verified. This gets you off on the right foot and helps avoid problem areas.

Draft specific questions to verify the data. This keeps your conversation on-track and productive.

Open the call by identifying yourself and the purpose of your call.

Ask the specific questions and note the answers.

Wrap up with a thank you to the person you’ve spoken to.

Borrowman:  Back to credit checks; is there anything else an employer needs to know if the employer decides to use them in the application process?

Crumlin:  Remember, employers must obtain the applicant’s permission to perform a credit check under the Fair Credit Reporting Act.  And, if the employer denies an applicant based on the results of a credit check, the applicant has a right to know why.

Hiring with caution is always a good thing. Choosing the right tools – and using them carefully – can make your hiring go more smoothly.