Q:  Last week you discussed how a bad credit report can hurt someone’s chances of getting a job offer.  However, if the reason for their bad credit is that they’ve been out of work for a long time, yet they can’t land a job because of bad credit, doesn’t that cause a vicious circle for both applicants and employers?

A:  Yes, it does.  And this is why the use of credit checks prior to hire is undergoing scrutiny.

As we are recovering from one of the worst recessions in decades, we see more candidates than ever before with seriously damaged credit.  Granted, some made poor choices.  But many more were otherwise responsible people who were impacted by the economy either through a layoff, buying an overvalued home, predatory lending or uninsured medical bills.   The best way for these folks to work their way out of debt is to have a job, and credit checks can often create an unnecessary barrier.

For this reason, several states now restrict the ways credit information can be used for employment.  But even when allowed -like in Florida- employers should avoid using the shotgun approach that checks credit on all applicants and instead focus on specific jobs that warrant it.  Not only will they save money on the actual reporting service, (which has become a lucrative industry unto itself) they may also be avoiding exposure to a possible charge of discrimination.

That’s right.  The Equal Employment Opportunity Commission recommends  that “pre-employment credit rating inquiries” be avoided because they “tend to impact more adversely on minorities and females.” Another reason to use credit reports sparingly is that -even though they have been marketed as a way to predict whether someone might be dishonest– so far there has been no conclusive evidence that correlates personal credit reports and the likelihood of engaging in deviant behavior.

So, yes, employers have an obligation for due diligence in hiring, especially for certain positions.  For instance, it’s important to know if that perfect candidate for chief financial officer has outstanding gambling debt.  However, this need must be tempered with the reality that in most cases, credit checks are unnecessary, expensive, and potentially discriminatory.