Credit Scores and Employment Screening: Dispelling the Credit Myth of the Decade

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(Image by Thomas Hawk, via Flickr.com)

Every few years I’m forced to spend some of my time re-convincing the world that employers do not use credit scores as part of their employment screening processes. I called this the credit myth of the decade on CBS MoneyWatch in 2010 and because 2011 was relatively quiet on the topic, I figured I was done. Oh, how I was wrong.

In January 2012 Suze Orman introduced her prepaid debit card, The Approved Card, and went to the airways to sell the plastic. Unfortunately included in the marketing pitch was a ubiquitous suggestion that if you don’t have a FICO score it can cost you a job. Almost overnight all of the work done by me and several other truth hunters was at risk.

So, in an effort to once again kill the myth of the decade, I find myself addressing the issue of credit scoring and employment screening.  Here goes…

TrueCredit report cards and credit scores are not the same things. Credit scores are an added option sold along with credit reports to lenders, insurance companies, and utility providers. Think of them as buying upgraded leather seats for your car. Credit report cards are, of course, the collection of your credit related information such as loans, credit cards, tax liens, bankruptcy, judgments, and some other items.

And let’s be very clear on one thing: credit scores—FICO scores specifically—are only distributed by the three national credit reporting agencies; Equifax, Experian and TransUnion. So, if credit scores were actually provided to employers then they would come from one, two, or all three of those companies.

Further, employment credit reports are only distributed by those same companies. So, if credit scores were actually provided to employers they would have to accompany the credit reports provided by one of those companies. You can’t have a free credit score without a credit report as a basis.

I reached out to each of these three companies to get fresh public comments regarding the issue of credit scores used for employment screening. Let’s see what they had to say about it.

1. Equifax on the Record:

According to an Equifax spokeswoman, “Federal law allows potential and current employers to view a modified version of your credit report. Credit scores are not sold for employment screening purposes.”

What that statement means is that the style of credit report that’s sold for employment screening is a different kind of credit report than the ones sold to banks. And that different type of credit report, often called an employment screening credit report, does not have the option to include a score.

So there we have Equifax, which is one of the three national credit reporting agencies telling me, on the record mind you, that they don’t provide credit scores to employers. Now, let’s see what Experian has to say about the topic.

2. Experian on the Record:

According to Rod Griffin, Director of Public Education for Experian, and one of the sharper knives in the consumer credit education drawer, “Credit scores are never used for employment purposes.” I’m pretty sure that emphatic public statement on behalf of Experian speaks for itself.  Now, let’s see what TransUnion has to say about the topic.

3. TransUnion on the Record:

I reached out to Clifton O’Neal, Senior Director of Corporate Communications for TransUnion, and asked him a very simple question, which was whether or not the rules about credit scores and employment screening have changed and if employers are now using scores. According to O’Neal, “Regarding your question, TransUnion is not aware of any such instances and TransUnion does not provide credit scores for employment purposes.”

And if public statements provided by every one of the national credit reporting agencies isn’t enough to convince you that scores are not used by employers—I reached out to the Consumer Data Industry Association, the trade association of the credit reporting agencies, and asked them the same thing. They confirmed what I already knew, which is the practice doesn’t happen and that the confusion is likely being caused by people using the terms interchangeably as if they were the same thing.

So the question is why in the world do people continue to say that employers use credit scores? It’s almost unfathomable that with all of the industry players going on record stating that it doesn’t happen, that some people still believe it does.

I’m convinced that someone will comment that they’ve either heard of someone being denied a job because of a score, or that they saw something on TV that suggested scores are used by employers. Ok, that’s a reasonable reason to get it wrong. The problem is that when I ask for something, anything, confirming the practice? Queue chirping crickets here. I’ve often called the credit score and employment myth the unicorn of the credit world—a lot of people have heard of them, but nobody has actually ever seen them.

Incidentally, I’ve reached out to Orman through FICO, with whom she has had a business partnership for almost a decade; CNBC, with whom she has a television show, and via her Twitter account, which I know she reads and to which sometimes responds. My request was very simple: can you please stop saying that employers use credit scores?

What to know when applying for a job

Although some employers do check a potential hire’s credit, here a few facts to keep in mind from a 2012 survey by the Society of Human Resource Management (SHRM):

  • Just over half (53 percent) of the organizations surveyed do not do credit background checks on any job candidates (compared to 40 percent in 2010).
  • Of the organizations that do perform credit background checks, 80 percent have hired someone despite credit issues.
  • Before the decision to hire or not to hire is made, 64 percent of organizations that conduct credit background checks allow job candidates to explain the contents.

Several states have their own laws governing the use of pre-employment credit checks, but thanks to the Fair Credit Reporting Act, employers must generally get your permission in writing before they can access your credit report. According to Elizabeth Owens Bille, Associate General Counsel at SHRM, when an employer checks an applicant’s credit, it’s usually done late in the hiring process right before they extend an offer, not as an initial screening.

“The ones that do credit checks do it just for certain positions,” Bille adds. “It’s really only for those jobs that have access to finances, someone in the accounting department or a senior executive.” In positions that require security clearance, a thorough credit and criminal background check may be mandatory and there may be less flexibility with hiring someone with credit issues.

However, in most situations even if an employer finds negative items on your credit report, it doesn’t automatically disqualify you from being hired, as the stats above indicate. Once an employer asks to pull your credit report, Bille suggests explaining any issues they might see. “I’ve heard form HR professionals that they appreciate the applicant being candid about a particular ding on their credit report, particularly if the person explains what happened and what they’re doing to remedy the situation,” she says. “For example, ‘as you may see on my credit report card, I have an account that’s behind in payments but I’m working with them to do a payment plan.’”

However, patterns of behavior that indicate money issues are more likely to raise eyebrows than one isolated late payment. “If you have debt or issues that are probably not your fault such as medical-related debt or a positive life occurrence such as education debt, employers are not concerned about that,” Bille says.

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Published February 29, 2012 Updated: April 13, 2016
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5 responses to “Credit Scores and Employment Screening: Dispelling the Credit Myth of the Decade”

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