A background check can be the deciding factor in whether someone gets hired or not, and many people looking for jobs don’t realise this. Employers can use different areas of a person’s background when looking at applicants’ backgrounds, but today less than half of all employers are allowed to check a candidate’s credit report as part of a background check. Employers are no longer permitted to view an applicant’s credit report because it can lead to unfair judgements based on financial problems.
New Laws Limiting Credit Checks
Recently, New York has become the 11th state to pass a law that prohibits most employers from using credit reports when they make hiring or promotion decisions. The effective date of this new law is April 18, 2023. In addition to New York, other states that have laws prohibiting this practice include California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont and Washington. Additionally, many cities and counties have passed local laws that restrict this practice.
What makes New York’s law unique is that it has a much broader application. Individuals that reside in New York but apply for jobs in other states will continue to be protected under this new law. Because of the increasing number of restrictions against using credit reports, many national employers are choosing to stop using them altogether, even in states that still allow this practice.
When Credit Reports Are Still Used
Except for the above, employers may be prohibited from using a person’s credit report in an employment decision when the person is applying for a job or if the applicant already has a job. However, employers can still review credit reports of those applying for specific jobs. These job categories generally consist of government, law enforcement, national security, and any position requiring the handling of a company’s money or any other sensitive information. In banks and financial institutions, credit reports can only be used when applying for certain regulated positions.
The premise for the risk associated with individuals under financial duress is that they may be at a higher risk for committing fraud or theft against the company. Although this is not true in every instance, it continues to be the basis for employers allowing background checks, including credit reports, for specific positions.
What Employers Look For
Credit issues alone aren’t typically a dealbreaker for employers. Rather, the employer will assess how serious or recent the credit issue is to determine whether to proceed with the applicant. Examples of serious credit issues include long-term overdue bills, being in collection accounts, and debts written off as bad debt, especially for positions involving financial accountability. On the contrary, an employer should typically disregard both medical debt and student loans as reasons for not hiring an applicant, unless the debts or loans would affect the applicant’s ability to perform the job functions related to those debts or loans.
Furthermore, employers have a responsibility to explain to applicants the reasons why credit history is an important consideration in relation to the position they are applying for and not to make unfair or discriminatory employment decisions based upon an applicant’s credit history.
How Job Seekers Can Protect Themselves
If an employer is going to run a background check or pull a credit report, they must ask you for written consent, which is generally when you have received a job offer. It’s wise to review your credit reports regularly on your own so that you can identify any errors.
An honest explanation of your situation is usually the most helpful if there are legitimate issues on your report. The more clearly you describe the circumstances, the less likely it is that there will be a misunderstanding about your situation. You have the right, under the law, to obtain a copy of your report and dispute any errors prior to the final hiring decision being completed.