Does Bad Credit = Dishonest Employee?

More and more industries are starting to include credit checks on all their applicants as a part of their qualification process. Does bad credit mean one is more likely to steal from the company, leave or be terminated?

A colleague of mine has been struggling with this process quite a bit recently. Not because he has poor credit, but because the company he works for will not allow him to hire, much less interview anyone whose credit is below 650. There are other stipulations too;

no late payments on any bill in the last 30 days,
no bank overdrafts within the last year, and
need to show that they have kept a minimum balance in their checking account for the last year.

Protecting the Customer

On the company's side, these requirements are not uncommon for any organization that has fiduciary responsibilities. They have a responsibility to handle, invest and direct their customers money with honesty and transparency. But does this mean that someone who has fell on hard times is more likely to misappropriate funds or steal from their customers?

Industries that require these checks for employment cannot take any chances on whether a person's integrity goes beyond their financial records. There cannot be the slightest feeling of unease regarding their employees ability to handle large amounts of cash responsibly. Unfortunately, interviews and references are not a reliable enough source to determine how someone will act when handling their customers investments. It appears the only way to get any qualitative evidence is in hard numbers. If they don't respect their own money, how can one be sure they will respect their customers'?

Consider the Economy

In the last 5 years, tens of thousands of Americans who keep perfect credit and their accounts balanced in a "normal" economy have had the rug pulled out from under them. Mass lay-offs, forced retirement, downsizing etc. So many people have lost their jobs due to circumstances out of their control. Many of them were ideal employees who were expecting to stay at their company for years. Do these types of employment screenings perpetuate hard times?

The trickiest part of this whole thing is that the quality trying to be defined is actually personality. Companies that screen applicants based on credit and the like, do so to determine the candidates level of honesty, integrity and trustworthiness. It appears credit is starting to define more than how big of a loan one can get.

So where do you stand?

Does your company or do your clients require you to provide this information from all applicants? How do you feel this affects the still wounded job market?

Louis Bina is the Marketing Manager for CATS Software, Inc.

Comment by Valentino Martinez on August 1, 2011 at 6:35pm: Bad credit ratings seem to be more the trend for individuals, employers, cities, states, and countries--these days.

It could mean a combination of things all happening at once for some--suggesting not to paint everyone, or every situation, with the same brush.

Comment by Louis Bina on August 1, 2011 at 7:27pm: Very well said Valentino. The "credit brush" is becoming all encompassing these days. Though I can understand why this practice is in place, it is hard to swallow the idea of having my character assessed through a number.

Comment by C. B. Stalling!! on August 2, 2011 at 10:50am: no

Comment by Louis Bina on August 2, 2011 at 10:53am: C.B., Thanks for commenting - would you care to elaborate?

Comment by Les Rosen on August 2, 2011 at 10:56am: Hard to believe how much mis – information is out there on this topic. First and foremost, employers are NOT accessing a credit score when using a background firm. That is NOT part of an employment credit report. If an employer is somehow getting a numerical credit score (e.g. 650 etc), , then they are engaged in questionable conduct in my view and are likely mis-using thier merchant accounts in a way that is unauthorized and likely violates their contract with the credit bureau. They also risk EEOC action since a numerical credit scores are only intended for the purpose of making loans or financial decisions. A credit score has no relevance to employment. A background screening firm provides a special type of credit report with no credit score (or date of birth and it does not count against your credit score as an inquiry). Most employers use credit repots sparingly for positions involving access to cash, assets or fiduciary decisions.

Any rate, here is a whitepaper that explains the area in more detail: http://www.napbs.com/files/public/Consumer_Education/Credit_Reports...

Comment by Louis Bina on August 2, 2011 at 11:06am: Thanks for the information Les. My information came directly from the source and though I am not allowed to name names I can tell you that this organization does not use a background screening firm, rather they do it all in house. You are correct that organizations using credit scores as a part of their screening process are those that have fiduciary responsibilities (banks, insurance companies, etc.) and that this is not common in many other industries. I definitely agree with you that this action is questionable which is why I decided to write about it. I am glad that you read it and shared your information.

Comment by Tom Dimmick on August 2, 2011 at 11:28am: Good question Louis! @Les, I could not disagree more! It may not mean a "Dishonest" employee but it may be indicative of bad judgement or a bad "fit". I recently had a deal fall apart because the candidate had put only 5% down on a +$300,000 home. When the bottom fell out of the real estate market, he owed more on the house than it was worth. That makes relocation almost impossible and a potential new employer extremely disappointed. For senior level positions, a credit check can save alot of pain. I think the point is; get full disclosure so that candidates are economically qualified as well as skill, talent and personality qualified.

Comment by Les Rosen on August 2, 2011 at 11:40am: HI Tom --I think we are actually on the same page. A credit score would not have revealed that issue. However, a credit report does have a credit history on it, which indicates if a person is underwater financially, which can be imortant. The key point is that a credit report and a credit score are two different terms of art. A credit score is a numerical formula designed to determine if a person will pay back money. A credit report has a great deal of information about a person’s debts, payment history etc. However an employment credit report do not have a numerical score. The bottom-line is that the EEOC is not going to look favorably on the use of credit scores for employment.

Comment by Tom Dimmick on August 2, 2011 at 12:25pm: @Les - Maybe not exactly the same page but close. I recommend to my clients that they do a full background check. This includes: verification of employment, military service, education, criminal record and credit report. The firm I use uses the three major credit reporting firms and the credit scores are shown. Candidates are asked to sign a release and hold harmless and are informed that the information may have negative employment consequences. I would agree that a "bald" credit score may be misleading and may be viewed unfavorably by EEOC if it is the determining factor in the hiring decision. However; when a credit rating that includes a credit score is only one element of a much larger and more thorough employment validation process, they truly have little to say.

Beyond this, and returning to Louis' questions, No, I do not think it is or should be required of all prospective employees. I believe these should be limited to senior managerial positions or those responsible for monetary transactions as a part of the daily routine. The juice must be worth the squeeze. As to how it effects the wounded job market, I can only opine that its impact will be limited if used appropriately.

In summary, I think that employers need to be cautious consumers and I believe that we as recruiters need to assist them in becoming so. misrepresentation equals termination and the guarantee of my firm is good for a year. I hate replacing people without benefit of a fee.

Comment by John Comyn on August 3, 2011 at 2:55am: So not only have people lost all their worldly possessions as a result of a devastating recession they now should not be allowed to work. Does credit worthiness trump talent, skills, experience etc. The way I work is to ask the candidate if there are credit problems and if so what are the reasons. If the candidate is forthcoming we will make the client aware of this. If we find the candidate has been dishonest when we do the credit check then there is a problem. But for crying out loud give your candidates the chance to come clean if there are problems.