Outline:
The Growing Trend of Restricting Credit History in Hiring
A background check can significantly impact a job offer if the results are unfavorable. Employers often request detailed information about a candidate’s past, but there is a growing trend of restricting access to certain types of data, such as credit history.
New York has recently joined the list of states that prohibit employers from using an individual’s credit report when making employment decisions, including hiring and promotions. This law will take effect on April 18. So far, New York is the 11th state to implement such a restriction. Other states with similar laws include California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington. In addition, several cities and counties have their own local laws in place, covering areas like New York City, the District of Columbia, Chicago, Madison, Wisconsin, Philadelphia, and Cook County, Illinois.
The New York State law may have a broader reach than others, potentially applying to individuals who live in New York but apply for jobs in other states. This means that someone in New York could be protected by this law even if they’re applying for a position elsewhere.
Employer Practices and Legal Considerations
As more states restrict the use of credit histories in job decisions, some employers are reevaluating whether they need to pull credit reports at all. National employers often aim for consistent practices across the country. As the number of jurisdictions with restrictions increases, many companies are questioning the necessity of checking credit history and may choose to stop the practice altogether.
However, credit reports are still used in specific cases. Employers are allowed to pull reports for roles that fall under exceptions outlined in state laws. These typically include positions in law enforcement, roles involving access to intelligence or national security information, and jobs that involve handling company funds or sensitive financial data. In the securities and financial sectors, credit checks may also be permitted for certain roles subject to financial regulatory oversight.
Concerns and Red Flags
While there is no universal list of red flags on a credit report that would automatically disqualify a candidate, employers often look for patterns of negative information. Melissa Sorenson, executive director of the Professional Background Screening Association, notes that organizations typically focus on the volume and recency of negative items.
Negative information might include long-overdue debts, accounts sent to collections, or those written off. Such items can signal financial distress or poor debt management, especially for roles that involve fiduciary responsibility or access to funds. Rima Hopkins, an HR knowledge adviser at SHRM, emphasizes that employers must follow strict procedural safeguards and give candidates the opportunity to review and respond to any concerns before making a hiring decision.
Employers may also give less weight to medical debts or student loans unless they are directly related to the job opening. It is important for them to connect any concerns to legitimate business needs and avoid using credit information in a discriminatory manner.
Steps to Prevent Issues
Employers cannot conduct a background check or pull your credit history without your written consent. They usually wait until after a job offer has been made before initiating the process.
During your job search, it is wise to check your credit report from each of the three major credit bureaus to ensure there are no inaccuracies. You can obtain these reports for free at annualcreditreport.com.
If you have legitimate credit issues and receive a job offer, Sorenson recommends being transparent with the employer and explaining the circumstances. The federal Fair Credit Reporting Act gives you rights regarding job background checks, including the right to contest errors or incomplete information once you receive a copy of the report.
It is also advisable to check your state’s fair credit reporting rules, as some may provide additional protections. For example, certain states allow you to request a copy of the background report when you sign the consent form.