Credit Reports and Job Hunting

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By Lester S. Rosen, Attorney at Law and President, Employment Screening Resources, reprinted with the permission of CareerBank

Employers can request credit reports before making a hiring decision, but applicants should be aware of their rights in this regard.

Many job applicants are discovering that employers require pre-employment credit reports before they hire. For many companies, a credit report has become a screening tool to evaluate a candidate and to exercise due diligence in the hiring process. But for job applicants, a credit report can feel like an invasion of privacy or a violation of their rights. However, job applicants have substantial legal protection concerning the use of credit reports for employment. In fact, an employer cannot obtain a credit report without an applicant's written permission and cannot use it to deny a job until the applicant has had the chance to review the report.

Employers seek credit reports on job applicants for a variety of reasons. Some employers utilize a credit report to verify that an applicant is responsible and reliable or to confirm identity. Other employers are concerned about hiring persons who cannot manage their affairs, or whose monthly debt payments are too high for the salary involved. Many employers limit credit reports to management and executive positions, or to positions that have access to cash, assets, a company credit card, or confidential information. Employers are well advised to run credit reports on bookkeepers or others who handle significant amounts of cash.

However, employers should approach the use of credit reports with caution, and have policies and procedures in place to ensure that the use of credit information is both relevant and fair. An employer should first determine if there is a sound business reason to obtain a credit report. Unless the information in a credit report is directly job related, its use can be considered discriminatory. For example, running a credit report for an entry-level person with low levels of responsibility or no access to cash is probably not a good practice. Unnecessary credit reports can discourage applicants from applying, and running mass credit reports on all applicants, regardless of the position, can have the effect of discriminating against certain protected classes. In addition, employers should avoid making negative hiring decisions on information that is old or relatively minor.

A credit report typically contains four types of information. First, it gives identifying data, such as name, social security number, and past addresses. Second, it shows how persons pay their debts, such as by credit cards and personal loans, and what are their car payments, student loans, and mortgage payments. It also shows how much credit a person has been given, how much they currently owe, and whether debts have been paid late or sent for collection. Third, it will indicate who has requested a credit report. Finally it will report public records such as court judgments, liens, and bankruptcies. Negative information will stay on a report for seven years, and bankruptcies stay for 10 years (although there are limitations to using a bankruptcy in an employment decision). For pre-employment credit reports, the three major credit bureaus use a special reporting format that leaves out actual credit card account numbers, credit risk scoring, and age.

The job applicant must provide written authorization before an employer can request a credit report. Under the Federal Fair Credit Reporting Act, an applicant has a series of additional rights. If an employer intends not to hire someone based upon information in the credit report, then the applicant must first receive a copy of the report and statement of rights. The applicant has a right to review the credit report and to dispute any information believed to be inaccurate or incomplete. This right applies even if the employer had additional reasons not to hire the person or even if an applicant has excellent credit, but the employer has other concerns based upon the credit report, such as a reported high debt level. It may be, for example, that the debt level is overstated in the report. If a final decision is made, an applicant is entitled to a second confirming letter. In California, job applicants must also be given the opportunity to request a copy of the report free of charge if the employer obtains it.

Because of the potential for errors on credit reports, applicants have a right to review a report before it is used to affect employment adversely. Although the credit bureaus make efforts to be accurate, credit reports are based upon millions of pieces of data assembled by human beings and computers from sources all over the United States, and mistakes are always possible. Negative information may also be the result of a disputed bill, dissolution of marriage, or some other problem outside the applicant's control.

If job applicants are concerned about their credit reports, they should first contact all three major credit bureaus and request a copy. There typically is a fee not exceeding $8.00, but in some circumstances reports are free. Credit reports, as well as information on costs and procedures to dispute information, can be obtained as follows:

If there is an error or explanation the applicant cannot resolve with the creditor, the applicant should write a detailed letter to the three credit bureaus, which have 30 days to investigate and resolve the dispute. If the report is corrected, the applicant may request the agencies to notify anyone who has received the report for employment in the past two years. If the dispute is not resolved to the applicant's satisfaction, the applicant has a right to place a brief statement on the credit report. All of these rights are explained in detail on the web site of the Federal Trade Commission, which oversees the credit industry.

If a job applicant has bad credit and wants to clear it up, there are excellent credit-counseling services available. The National Foundation for Consumer Credit, for example, is a non-profit organization that has over 1,400 affiliates throughout the United States that provide this service. Unfortunately, there also are scam artists who make false or misleading claims, and the Federal Trade Commission issues warnings about these scams and provides information for consumers on the FTC web site. It is worthwhile to take steps to maintain good credit because it can effect a job application.

Lester S. Rosen ([email protected]) is an attorney at law and President of Employment Screening Resources (ESR), a national background screening company located in California. See He is a consultant, writer and frequent presenter on pre-employment screening and safe hiring issues. He is a certified specialist in criminal law in California, a former deputy District Attorney and defense attorney, and has taught criminal law and procedure at the University of California Hastings College of the Law. His jury trials have included murder, death penalty and federal cases. He graduated from UCLA with Phi Beta Kappa honors in 1973, and received a J.D. degree from the University of California at Davis in 1976, serving on the Law Review. He has qualified and testified in court as an expert in the area of safe hiring and pre-employment background screening.

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