Monday, March 28, 2011

Are Credit Checks Legal for Employment Conditions?

By Debbie A. Duran, eHow Contributor updated: March 26, 2011

. It is legal for employers to conduct credit checks on job applicants. The Society for Human Resource Management released a 2010 employer survey with indications that 13 percent conducted a credit check on all applicants and 47 percent conducted a credit check for only certain types of jobs. "The Washington Independent" reported that employers are conducting more credit checks on job applicants and the economic downturn has made it harder for people to get a job because of bad credit, and they can't fix their credit because they have no job.

Credit Checks

When job candidates have their credit report screened, they see it as an invasion of privacy and a violation of rights. But it is not. Under the Federal Fair Credit Reporting Act (FCRA), employers are allowed to obtain and use an employee's credit report. However, there are certain guidelines for obtaining this information. An employer has to inform an applicant about checking into his background, and the applicant's signed permission is needed to validate the credit/background check.

Why Employers Conduct Credit Checks

The nature of the job is sometimes the reason a credit check is done. For example, financial institutions such as banking and mortgage companies are environments where embezzlement and fraud are easily committed. A good credit report is a good character indicator for an employer. In the federal government, all applicants undergo a standard comprehensive background check, regardless of position.

Employers also use credit checks simply to select one candidate over another, and there is nothing illegal about it.

Push to Ban Credit Checks

Credit checks for the purpose of employment have been a major disadvantage for the unemployed, according to "The Washington Independent." Several states and the federal legislature are looking at this trend and into passing bills addressing this issue. As of 2011, there are only four states that limit employers' pulling of employees' credit reports: Washington, Illinois, Hawaii and Oregon. There are 14 other states that are considering such bills: New Mexico, Vermont, Maryland, Colorado, New Jersey, Connecticut, New York, Pennsylvania, Indiana, Missouri, Nebraska, California, Texas and Kentucky.


An applicant has the right to refuse a credit check, but the employer has the right to refuse employment. After an employee has been hired, an employer can conduct subsequent credit checks. These post-employment credit checks can be used to facilitate promotions and transfers. If you had to sign the credit consent document when you started, the employer does not need your signature agai


PRC: Employment Background Checks: A Job Seekers Guide

Employee Issues: Employment Credit Check

"The Washington Independent": Are Employers Performing More Credit Checks on Job Applicants?

Read more: Are Credit Checks Legal for Employment Conditions?


  1. Hello.
    I am a candidate for fedral employment and while many would think that's great news. I have bad credit. Due to unemployment downturn and a foreclousure. How strict do the fed's expect your to look like.

    Bad Credit;A.K.A
    Good Guy

  2. The Impact of Delinquent Debt on Security Clearances

    (taken from, W. Henderson, January 28th, 2010)

    A sampling of Defense Office of Hearing and Appeals (DOHA) security clearance hearings from 2007 showed that about 50 percent of clearance denials involved “Financial Considerations.”

    Excessive indebtedness increases the temptation to commit unethical or illegal acts in order to obtain funds to pay off the debts. Most Americans who betrayed their country did it for financial gain—about half were motivated by a real or perceived urgent need for money and about half by personal greed.

    Aside from compulsive/addictive behavior, deceptive/illegal financial practices, and unexplained affluence, the remaining potentially disqualifying conditions detailed in Guideline F can be boiled down to one security concern—delinquent debt. High debt to income ratio and excessive indebtedness are listed as a potentially disqualifying condition, but this rarely comes into play absent any past or present delinquent debt or obvious signs of unexplained income. Low credit scores are not listed as a potential disqualifying condition, because factors unrelated to debt affect credit scores.


    Delinquent debt is by far the most common financial concern. In adjudicating these cases the following factors are taken into consideration:

    • Cause of debt
    • Response to debt
    • Amount of debt

    Cause of debt is generally more important than the amount of debt, because it reveals more about a person’s reliability, trustworthiness, and judgment. If the debt occurred due to situations beyond the applicant’s control and the applicant is handling the debt in a reasonable manner (including bankruptcy or debt consolidation), the significance of the problem is substantially reduced.

    How people deal with debt is often a decisive consideration. Those who ignore their financial responsibilities may also ignore their responsibility to safeguard classified information. Classic indicators of irresponsibility and unethical behavior are:

    • Changing addresses without notifying creditors
    • Failure to take reasonable measures to pay or reduce debts
    • Knowingly issuing bad checks
    • Increased credit card use immediately before filing for bankruptcy

    The words, “bankruptcy” and “credit counseling” do not appear anywhere in the Adjudicative Guidelines. This is because both bankruptcy and credit counseling can be considered positive efforts to get one’s finances under control. What is important is the underlying reason for the bankruptcy or credit counseling.

    Amount of debt focuses primarily on the delinquent amount, but as previously mentioned total debt, if it appears excessive, may also be taken into consideration. Significant delinquent debt is a security concern. For total debt there is a rule of thumb used by credit counselors. If an individual’s minimum monthly payments for consumer credit (excluding credit cards that are paid in full at the end of each billing cycle and mortgages on primary homes) totals more than 20 percent of monthly take-home pay, there is a financial problem. iry