Should You Conduct Employment Credit Check or Not?

As is the case with most business decisions employers must carefully weigh the decision to conduct employment credit checks based on evaluating the value and risk associated with the process. To examine this further let’s look at some of the important factors to consider in making this determination.

What Is an Employment Credit Check?

An employment credit report provides important information that can be useful in making a hiring decision. The report will show a comprehensive credit history (no credit score) and provides public record information.

Employment credit checks generally include the following identifying information:

  • Full Name
  • Address
  • Previous Names and Addresses
  • Debt
  • Bankruptcy
  • Payment History

What is the Legal Framework for Conducting Employment Credit Checks?

Equal Employment Opportunity Commission

Despite many employers’ positive opinions on utilizing employment credit checks as a tool to make employment-related decisions, the Equal Employment Opportunity Commission (EEOC) has taken a different stance with the belief that employment credit checks create a disparate impact on certain minority groups. A disparate impact is a theory of discrimination that applies when a seemingly neutral policy has a greater impact on protected individuals than those individuals not protected. When a claim of disparate impact is made, the employer must prove that the practice, in this instance credit checks, serves a legitimate business necessity.    

The EEOC has also taken the position that without a specific study validating the relationship between credit history and job performance, using credit checks almost seemed to be a clear violation of antidiscrimination law. 1

The National Consumer Law Center (NCLC) expressed at an EEOC conference on credit checks that “the use of credit histories “create[s] a fundamental ‘Catch-22’ for job applicants.” During the great recession many people experienced high unemployment and high foreclosures, both of which have a negative impact on credit.”2 Similarly, during the Covid pandemic many people lost their jobs due to government mandates and restrictions. This begs the question: “how do you re-establish your credit if you can’t get a job, and you can’t get a job if you’ve got bad credit.”

Bond Schoeneck & King expressed the view in the article, ‘EEOC takes the offensive on use of credit histories in hiring’ that “For that reason, employers should limit the review of credit history to positions where there is a strong nexus between a person’s credit history and the position for which an applicant is applying. The most obvious examples are positions involving direct access to the employer’s or client’s funds, particularly for individuals in higher level positions such as a controller or store manager.”3

In addition, even in cases where it may be appropriate to review a credit history, that information should be used as a supplement to all the other information gathered in the interview, background and reference checking process. Employers should be sure to undertake an individual assessment that considers multiple factors and the surrounding factors that contributed to the credit history as part of making the determinative in denying employment.

Companies are being unreasonable if they reject job applicants without first looking at why the person’s credit history is weak.

Local and State Government

In addition, a number of local and state jurisdictions have implemented laws to restrict the use of credit checks for employment purposes. 4

  • Banks and financial institutions in Chicago, Colorado, Connecticut, Washington D.C., Hawaii, Maryland, Oregon, Philadelphia, and Vermont;
  • Managerial positions which are defined in each particular state/local government’s legislation in California, Colorado, Hawaii, Illinois, and Philadelphia;
  • Positions with access to specified personal information, other than routine transactions and as defined by the specific state legislation in California and Maryland;
  • Positions with access to confidential/proprietary information, security data, or trade secrets in California, Connecticut, Illinois, Maryland, New York City, Philadelphia, and Vermont;
  • Positions in law enforcementin California, Washington D.C., New York City, Oregon, Philadelphia, and Vermont;
  • Positions involving access to assets of above a certain amount or with signatory authority to enter transactions on behalf of the employerin California, Connecticut, Illinois, Maryland, New York City, Philadelphia, and Vermont;
  • Positions with regular access to more than a certain amount in cashin California – $10,000 and Illinois – $2,500; and
  • Positions with access to expense accounts or corporate cardsin Connecticut and Maryland.

No state or local government prohibits the use of employment credit check report information when such use is specifically permissible under federal or state law.


Employers are required under the federal Fair Credit Reporting Act (FCRA) to provide an applicant written notice that a credit report will be conducted and receive their consent. A copy of the consumer report must be provided to an applicant if it is requested. Also, if an adverse employment action is taken which includes not being hired, a company must provide the name and contact information for the consumer reporting agency to the applicant and explain the reasons for the action and provide a copy of the report.

What is the Value of Conducting an Employment Credit Check?

The idea, disputed by many labor advocates, is that credit history serves as a barometer for how dependable someone might be and is an indicator of good character as well as their ability to accept responsibility.

“The EEOC has concluded that credit history is not a valid predictor of job performance.

Credit reports were designed to predict the likelihood that a consumer will make payments on a loan, not whether he would steal or behave irresponsibly in the workplace.  There is no evidence showing that people with weak credit are more likely to be bad employees or to steal from their bosses.  The most significant study on this issue, presented to the American Psychological Association in 2003, concluded there is no correlation between credit history and an employee’s job performance.

Even TransUnion’s representative on this issue, admitted at a legislative hearing in Oregon: “At this point we don’t have any research to show any statistical correlation between what’s in somebody’s credit report and their job performance or their likelihood to commit fraud.”5 

In addition, in the current job market where there are more jobs available than applicants, many employers are avoiding practices that would tend to reduce their applicant pool particularly if they are of questionable value.

Nevertheless, employment credit checks may be a useful tool for helping to mitigate the potential liability of fraud, theft and various white-collar crimes.

What are the Risks Associated with Conducting an Employment Credit Check?

One of the first questions that employers should asked is what they are actually looking for when you conduct an employment credit check.


Many employers have argued that employment credit checks allow them to see things like:


  • A applicant’s ability or inability to handle their money.
  • Whether or not they can make major financial decisions like making payments on time.
  • How they have managed one of life’s biggest responsibilities.
  • Links between derogatory marks and potential criminal behavior.

In addition, employers say they must take extra precautions because of increases in workplace fraud. More than $4.7 trillion is lost annually to occupational fraud worldwide, according to the latest data in Occupational Fraud 2022: A Report to the Nations, released by the Association of Certified Fraud Examiners (ACFE).

The assumption that employers are making is that workers under financial stress may be tempted to do wrong.

“Workers who feel they’ve been denied jobs because of credit checks say such thinking by employers’ paints everyone with too broad of a brush.”7

How to Effectively Implement an Employment Credit Check Process?

Employers should have a written policy that governs the procedure and process for conducting employment credit checks as part of an overall background checking policy. The guidelines should reflect that employment credit checks will only be conducted on applicants and current employees that are required to handle or provide oversight to significant levels money in the course of their jobs or are mandated by law.

Rod M. Fliegel, Co-Chair, Background Checks Practice Group, Littler Mendelson law firm shared in a special report on employment credit checks that to help mitigate legal risk relevant questions employers should ask about the company’s specific screening program include:

  1. For which positions do you screen applicants using credit history information?
  2. What is the business necessity for each position that you screen using credit history information?
  3. What documents can be used to demonstrate the business necessity and job-relatedness for each position that you screen using credit history information (e.g., job descriptions)?
  4. When do you evaluate the results of the credit report (i.e., pre-offer or post-offer)?
  5. Who decides whether to reject an applicant based on a credit report (i.e., is the decision-making process centralized or decentralized)?
  6. How do the decision-makers decide whether an applicant should be rejected on the basis of the credit report? Do the decision-makers follow up with the applicant for additional information (in no cases, some cases, all cases)?
  7. How are the decisions of whether to reject an applicant on the basis of a credit report documented?

Fliegel also shared one best practice for employers . . . is not to rely on a credit report alone when making a hiring decision. Instead, the recommended best practice is to interact with the applicant to find out if there is an explanation for the tarnished credit history, such as identity theft, before making an employment decision.

In addition, employers must be mindful of the requirements of the Fair Credit Reporting Act as well as other state laws limiting their use.


Employers are certainly justified in using employment credit checks as a tool to help mitigate the risk associated with fraud when appropriate and applied within the framework of legal requirements.

Even so, employers need to be mindful of the potential risks associated with conducting employment credit checks. These include the anti-discrimination laws, state credit history protection laws, and the FCRA.  The EEOC’s position is clear – credit history is not a valid predictor of job performance.

Implementation of employment credit checks should be limited to positions that clearly have financial responsibilities over significant organizational funds or where there is a nexus with the nature of the work being performed. This practice should be governed by a written background checking policy that includes specific guidance regarding the use of employment credit checks.

It is time for the outdated beliefs about employment credit checks providing insight to applicants character and risk level of behaving badly to be put to rest. There is no evidence that supports this notion.

As is the case with all forms of background checks it is important to consult your legal counsel regarding the proper and legal use of employment credit checks.


  1. McKenna, SHRM-CP, Patrick ‘Potential Nationwide Ban on Most Employment Credit Checks,’ 02/06/2020;
  1. EEOC Commission, Meeting of October 20, 2010 – Employer Use of Credit History as a Screening Too;
  1. Smith, Kristen E., EEOC takes the offensive on use of credit histories in hiring,’
  2. ditto
  1. EEOC Commission, Meeting of October 20, 2010 – Employer Use of Credit History as a Screening Too;
  2. Ditto
  1. Johnson, Bonna, ‘Credit checks choke job hunters’ efforts,’
  2. Employers should be wary of credit checks