09/ 26/ 2007
by Amy Cates
Why credit scores should influence your hiring decisions
Are you getting ready to bring on a new employee? If your company is in hiring mode, a credit history or score can mark a prospective employee as a good or bad risk, depending on the job responsibilities.
According to a 2004 survey conducted by the Society for Human Resource Management, 19 percent of employers always (and 24 percent sometimes) conduct credit checks on prospective employees before hiring.
If the position you're trying to fill involves making budget decisions, handling cash or managing the books, a credit report can reveal how a candidate manages his own finances. It can also indicate if the candidate is under financial stress, which may distract him from the work at hand and possibly lead to poor decisions on the job.
The Fair Credit Reporting Act, first enacted in 1971, requires employers to first secure an applicant's permission before running a credit check. Amended in 1997 to further protect consumers' privacy rights, the legislation made it a civil-law violation to obtain a consumer report without an acceptable purpose.
"The long and short of it is you can run a credit check as long as it's pertinent to the job," says Alice Magos, an analyst with Illinois-based CCH Inc., which provides leading tax and business-law information and software solutions. "You can be severely fined if you can't show a legitimate reason for running a credit check."
The federal law outlines strict requirements that protect employees, but some states offer further specifications as to how companies can use credit reports in employment situations.
If information contained in the credit report leads to adverse action, the employer is required by federal law (and some state laws) to furnish, in writing, the name and address of the consumer agency that provided the report.
According to the Public Interest Research Group, 79 percent of all credit reports contain errors. So if you find an employee's credit history unfavorable, consider allowing the candidate to investigate and correct the errors.
NFIB.com
Learn more ways to evaluate a prospective employee before hiring in "Hiring and Recruitment" in the "HR" section of www.NFIB.com/toolsandtips.
