We already run criminal record, adult maltreatment and child abuse registry checks, but what about credit checks? Employees who are unable to manage their financial lives results in us having to deal with garnishments, difficulty in make direct deposit of checks (either they keep changing accounts or can’t get one at all) and petty theft or worse. What is the best way to do this and what are the pitfalls? We are a nonprofit serving people with disabilities and a staff of 90 plus.

I’m not so sure you want to get involved with credit checks. First of all, people claim that credit checks are discriminatory because minorities tend to have lower scores. Whether this is due to discrimination or not is irrelevant. What is relevant is that a perception of discrimination can open you up for law suits and win or lose, the employer always has to pay costs to defend.

Garnishments are a non-issue. You can have stellar credit and still have a garnishment. (For instance, some states don’t allow you to write an actual check for alimony or child support–it comes out of your paycheck directly.) Your payroll should be set up to handle garnishments.

You can make it clear to prospective employees that your company will honor all legal garnishments and you will not discuss them, but the person must take it up with the state. I realize that won’t stop your payroll manager from being screamed at. But, as I said, credit checks won’t make that go away.

Your second concern is direct deposit. I’m guessing, given the nature of your work and your nonprofit status, that your employees are not highly paid. You aren’t going to find adults making $10 an hour with credit scores in the 800s. You are also going to find that many of them don’t have bank accounts at all. (In fact, a friend who is a payroll manager at a large company said she finds that many professional level people from certain countries also don’t use bank accounts, or at least not direct deposit. They get live checks and sometimes wait months to cash them.)

My best advice is to stop fighting the lack of direct deposit problem and just acknowledge that some percentage of your workforce prefers a live check. I know it’s more expensive. I know it’s a huge pain. But, there it is. You can do things to encourage direct deposit. (See if you can join your business to a credit union–that could help. I have no idea how that is done or if that’s even feasible, but it seems like a good idea.)

The last thing is petty theft. Again, I don’t think a credit check is going to help you with this. Someone stealing $10 in supplies from an employer isn’t going to have that theft show up on her credit report. If prosecuted, it would show on a criminal report. I realize you are trying to weed out people who are in bad financial straits and therefore tempted to commit petty theft.

While that may be your best justifiable reason for running a check, the liability that opens you up to–I think you’re obligated to show how a good credit relates directly to the job–isn’t worth it. Instead implement policies and practices that discourages and punishes petty theft.

Now, don’t make your policies so punitive that people are scared to accidentally take home a company pen. One thing to keep in mind is that companies typically allow their office staff privileges that their hourly staff don’t get. For instance, you don’t freak out at all if Jane in accounting photocopies her Christmas letter on the color copier every year (100 friends she sends to!), but if Jill in housekeeping takes home a plastic mug you are all over that, even though Jane cost the company a lot more.

But, go ahead and let people know that taking company supplies is unacceptable and grounds for termination. And then do it.

As I said, I don’t think credit checks are the answer to your problems. Perhaps better interviewing techniques, or raising pay to attract a more skilled set of employees. If these aren’t feasible, print some paper checks, garnish away, and lock up your supplies.

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29 thoughts on “Credit Checks

  1. I’d note that in some jurisdictions, you can’t do blanket credit checks on incoming employees – only on those who will be holding a position of fiduciary trust, such as an accounting, finance, buyer, or executive admin position, or where an individual will have access to or control over cash or cash accounts.

  2. At the company I work for, as a rule, we only do credit checks on the bean counters (accounting and financial types). Quite honestly, we could care less what a person’s credit score is. We’re interested in bankruptcies, loan defaults, and significant credit liability. These things tend to speak to a person’s level of responsibility where money is concerned. If they’re not careful with their own money, should they really be trusted to handle the company’s? Don’t waist your money on credit checks for all perspective employees, but perform the check where it counts.

    On the topic of Direct Deposit (DD): Most people living in the 21st Century see DD as a convenience and relish in its simplicity. The last time I set foot in a bank was to cash the $15 birthday check that my Grandma sent me. I hardly knew what to do. Those wishing to only receive a live check should instead be paid in other tangible, negotiable goods, like rubber boots. Or better yet, go live and work at your local Socialist Commune. You’ll get to perform manual labor all day and be compensated with a vegetarian meal and a place to sleep – yippee!

  3. I agree that a person with financial stability might correlate to someone with good judgment. I’ve ranted more than once on my own blog about it…but here’s something worth thinking about…

    I had someone use my credit for themselves (without my knowledge or approval). I found out about the blip on my credit report when I applied for a loan. I called the company who was claiming I owed them $110, and explained that I didn’t approve the charge. They didn’t care. After 7 months of arguments, calls to lawyers, a DA, you name it, I determined that it was going to be impossible and quite expensive to get it removed from my report. Paying the bill (to me) was like accepting guilt so I decided to leave it on there and since my credit beyond that blip was great, dealt with it. This blip would show up on the credit report you’re advocating. Think about those instances before blanketing a policy that would (IMHO) be unnecessary. Also worth noting…your inquiry has a (small) effect on someone’s temporary score. As a candidate, I wouldn’t approve of the inquiry until I had an offer pending __ in my hand.

  4. Questions like this really make me wary of what companies consider to be good hiring policies. How much of the prospective employee’s personal life do they want to pry into? If it’s not for a financially significant position, the employee’s “financial life” is not significant.

  5. I work in finance, and am totally okay with checking for loan defaults, bankruptcies, etc., but would hate to think that I’d be passed over for a job due to “significant credit liability” especially these days when a lot of people have to resort to their credit cards just to survive through periods of unemployment, underemployment, or emergencies. I mean, that’s generally why people look for jobs, so they can pay their bills.

    My father’s employer just started a direct-deposit only policy, and it’s been a mess. I think they’ve ended up having to do something like a debit card, since several of the employees can’t/won’t get a bank account, but it’s a manufacturing situation with a lot of low-wage employees [in a small town.]

  6. If you don’t want to deal with physical checks, you can also look into the possibility of check cards. They work like direct deposit on the employers end, but the employees don’t need to have a bank account.

  7. There was a period of several years in my life when my credit was pretty bad. No bankruptcies, but some collections, a few bounced checks, and problems with student loans. So on paper, I probably would have been a bad risk.

    However, I have never done more than make a few photocopies (no more than 10 at any one time, and only on rare occasions), send a fax, and use my employer’s scanner – most of my employers have had a “keep it to a minimum” type policy, so it wasn’t considered wrong. Nor have I ever considered taking money from an employer on the few occasions I’ve had responsibility for handling money. So I have always resented (and still resent) that marginal credit = irresponsible or untrustworthy. It can…but I think that, at most, it should be one factor considered, not the decisive factor.

    Also, if I recall correctly, too many inquiries within a short period of time can actually lower a person’s credit score. So if the person is also trying to refinance a mortgage, get an apartment, or something similar, the extra inquiry could have implications for them if their situation is borderline.

  8. I am the HR Director for a government facility for people with developmental disabilities. People in direct support jobs often have access to the spending money of the people they support. They also work overtime and we have fired several long term employees we caught falsifying overtime reports. We don’t run credit reports, but we have considered it.

    Also, we have mandatory direct deposit. When we implemented it, we encouraged all current employees, but made it mandatory for new hires. If someone shows up on hire day without our direct deposit form completed by their bank, they are not hired until they return with it. We do have a credit union and they will open an account for new hires based on the tentative job offer document we give them.

  9. If it’s not related to the job then don’t worry about it. I work in a very similar organization and only our accounting and HR people go through credit checks.

  10. You can have stellar credit and still be a thief. Also in this market one out of five is most likely going to have rough spots on their credit. A good HR person will be able to gauge what kind of person they are without having to look into a person’s financially history.

  11. Both of my parents have terrible credit, because they invested in a business that went belly-up. I’m sure they aren’t the only ones to do so in this economy.

    These are people who have never stolen a thing in their lives and who are not irresponsible by nature. “Bad credit” does not necessarily mean a person is a thief, or that a person spends wildly beyond his means.

    I understand the temptation to use credit as a guide to how people REALLY are, but in reality things are rarely so clear-cut. And, as ERHL said, you open yourself to all sorts of potential legal issues.

  12. Maybe employees should ask employers about their judgment and responsibility with finances? I’m looking at you AIG, Merrill Lynch, and any other bank that needs to be bailed out with billions.

  13. My credit is totally messed up right now, thanks to periods of unemployment and doing what has to be done to pay for essentials.

    My husband has his wages garnished for child support – the state his daughter is in does not give you the option of paying on your own. If you go over and above, that’s peachy, but the basic child support comes out before anything else.

    I think it’s important to look at the entire employee package when making hiring decisions. As others have pointed out, it’s entirely possible to have stellar credit and zero morals, and make off with lots of money. Most of the horror stories I’ve heard about embezzlers was a hard-working employee who never raised any red flags until they were either ready to take off, or long gone and someone else audited.

  14. you don’t freak out at all if Jane in accounting photocopies her Christmas letter on the color copier every year (100 friends she sends to!)

    Jane probably thought, “This is my comp time/product for those 8 times I sat in the Cedar Rapids airport until midnight because my 4:00 p.m. flight home was delayed coming back from doing the close at the Cedar Rapids plant when their controller was out on maternity leave and I had to eat pretzels and diet Coke from the vending machine for supper. Sometimes I hate this job.”

  15. I’ve never understood the anti-credit report hysteria. Yes, there are exceptions in which someone has bad credit due to no fault of their own, e.g. identity theft. But some brilliant people never go to college because they can’t afford it, or drop out to care for an ill family member, etc., and that doesn’t make us opposed to requiring college degrees for certain jobs. Some not-so-bright people pass professional licensing exams because they can afford private tutoring and have no other demands on their time, e.g. childcare, but we still value those exams. Credit checks are a good heuristic into a candidate’s level of responsibility. Not perfect, but neither is anything else we happily use in evaluating candidates.

  16. Credit checks are bad for anyone not dealing with the company’s money because they

    a) aren’t related to the job
    b) there are lots of reasons that you could have bad credit that have don’t reflect on character or likelihood of recurrance
    c) the assumptions that a hiring official (this one in particular) may make in using the information may be discriminatory, or at least irrelevant.

    Regarding garnishment, direct deposit, etc. Get a payroll service. The cost is very low, and they have options like debit cards, garnishment service, etc. that make the extra work negligible. The costs are also likely to be less than the wages of the person you’re currently paying to do payroll.

    The person who wrote this seems very self-righteous to me…and utterly unaware of the role that luck and other factors probably played in his/her life.

  17. One more thing to add…

    Something you could try is a questionnaire, asking questions like “Do you think it’s ok to take home small office supplies, like pens, paper, etc?”

    I know this seems moronic, but I spoke with one temp agency who had a similar questionnaire, including things like “Do you smoke marijuana?” a)daily, b)never c)…
    As amazing as it seems, the agency said that the test weeded out about 20% of the candidate pool. (yep, I’m a pot head!) There are probably more subtle versions which might even do better.

  18. The requirements of FCRA as well as what happens when you decline someone due to their credit is a sticky wicket. How about adding bonding or employee dishonesty rider on your company insurance policy?

  19. A guy I know in college who got a near-perfect score on the LSAT was a rather frequent user of marijuana. My husband is a Silicon Valley engineer who works with a lot of engineers who are occasional users who are really good, responsible engineers.

    I think it’s kind of dumb to use drugs (what a waste of good money that could be spent on shoes!) and it’s illegal, but if you don’t do it at work and it doesn’t inhibit your job performance (ie, you are not a pilot or a trucker or don’t otherwise operate heavy machinery), then why is it your employer’s business?

  20. To be quite honest, I’ve never understood the theory behind doing credit checks when you’ve already done a criminal records check. In my experience, rarely does a less than stellar credit history have any reflection on a person’s ability to do their job.

    The poster wrote “Employees who are unable to manage their financial lives results in us having to deal with garnishments, difficulty in make direct deposit of checks (either they keep changing accounts or can’t get one at all) and petty theft or worse.”

    Sorry to the poster, but all of those issues relate to any employee, not just one who has had past credit issues, and are a fact of life when doing payroll or managing people. If we cut out anyone who has had credit issues in the past, we’d probably be eliminating more than half of our qualified candidates. There is a strange assumption here that people who have had credit issues are inherently bad, which is a real lack of understanding of the life problems that cause credit issues. Divorce, family illness or death, being laid off, etc. , are all factors out of a person’s control that can affect credit rating and have nothing to do with being a “bad” or “irresponsible” person.

  21. Hmmm,

    Let me see.

    I know a guy who screwed a bank by fraud and now works in a Stock Brokers.

    Yes, I agree with credit checks and a lot more besides.

  22. I was offered a job…
    Given an offer letter…
    Once they ran my credit….the resended the offer….
    I am a good person, never been in trouble with the law…
    Just down in my luck a couple of times due to unemployment….

  23. I have successfully fought the 'let's check credit because anyone with a bad credit history must be a horrible person' argument many times. Primary arguments which have contributed to that success:
    * There are very few jobs within any company for which managing money (and by extension, credit) would qualify as a BFOQ. If you can’t tie a hiring criteria to job performance, you have nothing to defend yourself with when a candidate decides to fight. The idea that those with poor credit scores can be categorically and accurately labeled as lazy, irresponsible, incompetent, and, as the original poster outrageously suggested, criminal is simply lazy.
    * Technically qualified employees can end up with poor credit scores for many reasons that have nothing what so ever to do with job performance. One company I worked for denied employment to a candidate for a finance position for which managing money/credit was a legitimate BFOQ based on the credit history. Then they got to defend themselves against a discriminatory employment practice claim given the candidate was forced into CH11 when his medical insurance coverage failed to cover the medical costs incurred as a result of the defendants child’s horrible medical disability. (Perhaps they were clients of the original poster, who’s non-profit serves those with disabilities?) The company could not demonstrate that the candidate lacked sufficient qualifications to perform the job and settled. Imagine defending this in front a jury who identify empathetically with the candidate and their child. There’s you, the evil company. There’s the plaintiff, and their crippled, disabled child in the front row. I’m betting on the plaintiff. While that may have been unusual, consider the number of excellent prospective employees out there who are the victims of identity theft, or just unscrupulous lenders. Huge numbers.
    * To the point made in this thread, using credit histories and scores in hiring decisions can and have been shown to adversely impact protected classes. Having the EEOC and outside Atty's pursing discriminatory hiring practice claims for a candidate, or worse a class of candidates, is a long way from my idea of a good time.

    What I resent most about arguments for using credit histories in hiring decisions is the arrogance of the advocates of such schemes. This 'holier-than-thou" belief that anyone with a bad credit score brings to the job a host of negative attributes and traits is not that dissimilar in my view from being biased toward, say, Hispanics because you believe that they are all lazy, illiterate immigrants. Given our cultures crack-like addiction to credit, aversion to saving money, horrible healthcare system and the lack of a social safety-net it should surprise no one that great, smart, hard-working, dedicated, ambitious potential employees might have fallen on hard times in the past and as a result have a negative credit score. Rather than defaulting to lazy, ill-conceived hiring criteria (like a credit score), learn how to execute a skills-based hiring practice that focuses on the KSA’s needed to succeed in the job, on the team, within the work group, and in the company.

    For what it’s worth I have >15 years in HR, a lot of that spent managing the staffing side for very large companies, most with a US workforce >3K. And I insist on a live check.


  24. I would think the more you could learn about someone the better. The more information you have about an applicant would help you make a more informed decision.

  25. pls can someone help with this? i work in finance and had missed payment on two of my credit agreement. but now the accounts are up to date. can i be refuse employment in finance because of this. no CCj etc

  26. As someone who is one of the 10 dollar an hour workers being discussed in this article, I think you’re wasting your time with a credit check and you’d probably eliminate the majority of candidates. Someone doing such a tough job for so very little money doesn’t deserve the added insult of being asked to do a credit check! Of course they don’t have great credit! They can’t even feed themselves on 10 dollars an hour. At my particular agency, we have a 60 percent turnover rate every year. People in your position (the person who wrote in to EHRL) should try working in mine to see how hard it is. It would be great if you would appreciate us a little more!

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