Shrm poll credit_checks092110

September 22, 2010

Background Checking: The Implications of

Credit Background Checks on the Decision to

Hire

Background Checking: The Implications of Credit Background Checks on the Decision to Hire| ©SHRM 2010

Key Findings

• Do most organizations conduct credit background checks on all job candidates? Four out of

10 organizations do not conduct background checks at all, while 47% conduct background checks on

select job candidates. Only 13% of organizations conduct credit background checks on all job

candidates.

• Which factors have the most impact on hiring decisions? The three most influential factors for

recruiters in the decision to hire a job candidate or not are: 1) a “good fit” with the organizational

culture (85%); 2) previous work experience directly applicable to the job (82%); and 3) specific skills

expertise needed for the job (80%). Only 9% of recruiters reported that favorable credit background

check results were most influential in their hiring decisions.

• For which candidates do organizations conduct credit background checks? Primarily for those

candidates applying for positions with financial responsibility (91%); for senior executive positions

(46%); and for those positions with access to highly confidential employee information (34%). These

trends span across all industries, they are not unique to financial institutions. In other words, HR

professionals report using credit background checks for positions where this information is most job

relevant – regardless of industry.

• Do employers use credit background checks to screen out mass numbers of candidates in

the early phases of the application process? No; at least 87% of organizations initiate credit

background checks only after a contingent offer (57%) or after the job interview (30%). This finding

also substantiates the finding that organizations place relatively more importance on other job

relevant factors in making hiring decisions.

• Are credit background check results used as a definitive hiring criterion? No; 87% of

organizations report that they allow job candidates, in certain circumstances, the opportunity to

explain results.

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Key Findings continued

• Do all debt revealed from a credit background check results in the decision not to hire? The

top two situations that would impact an organization’s decision to NOT extend a job offer are: 1)

current outstanding judgments and 2) accounts in debt collection. For most organizations,

foreclosures, tax liens, education-related debt and medical debt do not play a major role in the

decision to not hire a job candidate.

• How far back is credit checked? When examining credit background checks, organizations focus

on long-term credit history, not short-term single events. Most organizations focus on credit history

between 4 to 7 years overall; 33% of organizations reported that up to 6 to 7 years of credit history

was most influential in their organization’s assessment of the job candidate’s credit standing, and

27% reported that up to 4 to 5 years was most influential. 17% of organization indicated all years of

the credit history are equally important.

• Why do organizations conduct credit background checks? The primary reasons that

organizations conduct credit background checks are: 1) to reduce/prevent theft and embezzlement

and 2) to reduce liability for negligent hiring.

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Background Checking: The Implications of Credit Background Checks on the Decision to Hire| ©SHRM 2010 4

In general, when making a hiring decision about a job candidate, which are the most important factors influencing the final decision to hire a particular candidate over another?

Note: n = 518. Percentages do not total 100% due to multiple response options.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Favorable credit background check results (e.g., criminal history, etc.)

Certifications directly applicable to the job (e.g., CPA, PHR, PMP, etc.)

Education directly applicable to the job

Favorable criminal background check results (e.g., criminal history, etc.)

Favorable reference background check results (e.g., verification of employment history, etc.)

Performed very well during the interview (e.g., professional demeanor, good communicator, etc.)

Specific skills expertise needed for the job (e.g., technical skills, communication skills, etc.)

Previous work experience directly applicable to the job

A “good fit” with the organizational culture

9%

29%

35%

44%

47%

67%

80%

82%

85%

•The three most influential factors in hiring decisions were: 1) a “good fit” with the organizational

culture (85%); 2) previous work experience directly applicable to the job (82%); and 3) specific skills

expertise needed for the job (80%). Only 9% of organizations reported that favorable credit

background check results were most influential in their hiring decisions.


In general, when making a hiring decision about a job candidate, which are the most important factors influencing the final decision to hire a particular candidate over another?

• Favorable credit background check results (by region): Organizations in the Northeast (17%) were more likely

than organizations in the Midwest (6%) to report that favorable credit background check results are a most important

factor influencing the final decision to hire a particular candidate over another.

• Favorable credit background check results (by industry): Financial services organizations (48%) were more

likely than health care and social services organizations (4%), non-auto manufacturers (8%) or professional services

organizations (9%) to report that favorable credit background check results are a most important factor influencing

the final decision to hire a particular candidate over another.

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Comparison by Organization’s Region and Industry


Does your organization, or an agency hired by your organization, conduct credit background checks for any job candidates by reviewing the candidates’ consumer reports?

All job candidates13%

Select job candidates

47%

No, my organization does not conduct this

type of background check for any of its

job candidates 40%

All job candidates

Select job candidates

No, my organization does not conduct this type of background check for any of its job candidates

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Note: n = 343

•Four out of 10 organizations do not conduct background checks, while 47% conduct background checks on

select job candidates – those with financial responsibility, those applying for senior executive positions,

those with access to highly confidential employee information (see slide 6). Only 13% of organizations

conduct credit background checks on all job candidates.


On which categories of job candidates does your organization conduct credit background checks? (Select Job Candidates)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Other

Job candidates who will work in health care or with access to drugs (e.g., hospitals, nursing

homes, clinics, pharmacies, rehabilitation centers, etc.)

Job candidates who will work with children, the elderly, the disabled and other vulnerable

populations

Job candidates who will be employed in safety-sensitive positions (including operating heavy

equipment, transportation, etc.)

Job candidates for positions involving national defense or homeland security

Job candidates who will have security responsibilities (e.g., security guards, etc.)

Job candidates for positions for which state law requires a background check (e.g., day care

teachers, licensed medical practitioners, etc.)

Job candidates who will have access to company or other people's property or otherwise

placed in a position of financial trust (e.g., information technology, administrative services, etc.)

Job candidates who will have access to highly confidential employee information (e.g., salary,

benefits, medical information or other personal information about employees, etc.)

Job candidates for senior executive positions (e.g., CEO, CFO, CHRO, etc.)

Job candidates for positions with fiduciary and financial responsibility (e.g., handling cash,

banking, accounting, compliance, technology)

4%

3%

3%

5%

8%

9%

11%

30%

34%

46%

91%

7

Note: n = 158. The data in this figure represent organizations that conduct credit background checks on select job candidates. Percentages do not total to

100% as respondents were allowed multiple choices.

•Primarily for those candidates applying for positions with financial responsibility (91%); for senior executive

positions (46%); and for those positions with access to highly confidential employee information (34%) are

among the job candidates that organizations select for credit background checks. These trends span across

all industries, they are not unique to financial institutions.


What is the primary reason that your organization conducts credit background checks on job candidates?

0% 10% 20% 30% 40% 50% 60%

To comply with applicable state law requiring a background check for a particular position

To assess the overall trustworthiness of the job candidate

To reduce legal liability for negligent hiring

To reduce/prevent theft and embezzlement, other criminal activity

7%

12%

27%

54%

8

Note: n = 195

•The primary reasons that organizations conduct credit background checks is: 1) to reduce/prevent

theft and embezzlement and 2) to reduce liability for negligent hiring.


In general, if a credit background check revealed information that presented the job candidate’s financial situation negatively, what types of information are MOST likely to affect your decision to NOT extend a job offer?

0% 10% 20% 30% 40% 50% 60% 70%

Other

Medical debt

Education-related debt

Tax liens

Foreclosure

High debt-to-income ratio

Bankruptcy

Accounts in debt collection

Current outstanding judgment(s) (e.g., lawsuit filed in court)

3%

1%

2%

10%

11%

18%

25%

49%

64%

9

Note: n = 201. Percentages do not total to 100% as respondents were allowed multiple choices. Respondents were asked to select their top two

options.

• When examining credit background checks, organizations focus on long-term credit history, not short-term single

events. Among organizations that conduct credit background checks for job candidates, 33% reported that up to 6 to

7 years of credit history was most influential and 27% reported that up to 4 to 5 years was most influential (see slide

12).


When does your organization, or any agency hired by your organization, initiate credit background checks on job candidates?

0% 10% 20% 30% 40% 50% 60%

Other

After the completion of a job application but before job interview

Varies by job level

After job interview but before a job offer

After a contingent job offer

1%

3%

9%

30%

57%

10

Note: n = 199


Does your organization allow job candidates, in certain circumstances, the opportunity to explain the results (e.g., high debt, bankruptcy, etc.) of their consumer report that might have an adverse effect on an employment decision?

Yes, after the credit background check is conducted but

before the decision to hire or not hire

is made65%

Yes, after the decision to hire or not hire has been

made22%

No, not at any time, 13%

Yes, after the credit background check is conducted but before the decision to hire or not hire is made

Yes, after the decision to hire or not hire has been made

No, not at any time

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Note: n = 197

•Before the decision to hire or not has been made, 65% of organizations allow job candidates to

explain the results of their credit background check (obtained via their consumer report). Twenty-

two percent allow job candidates to explain after the decision to hire or not hire has been made.


In general, when conducting a credit background check on job candidates, how many years of credit history are most influential in your assessment of the job candidate’s credit standing?

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Note: n = 230. Excludes respondents who indicated, “N/A, my organization does not conduct credit background checks for any of its job candidates."

Percentages do not total 100% due to rounding.

0% 10% 20% 30% 40%

All years are equally important

Up to 1 year

Up to 2 to 3 years

Up to 4 to 5 years

Up to 6 to 7 years

Up to 8 to 9 years

Up to 10 years or more

17%

0%

14%

27%

33%

3%

5%

•When examining credit background checks, organizations focus on trends of financial behavior. In fact,

organizations indicated that current outstanding judgement(s) (64%) and accounts in debt collection (49%)

has the greatest impact on final hiring decisions (see slide 9). Both of these situations are synonymous

with financial issues that have remained unresolved for longer periods of time.


When conducting credit background checks on job candidates, in general, how many years of credit history does your organization check by job level?

1 year2–3

years

4–5

years

6–7

years

8–9

years

10 years

or more

Executive/upper management (e.g., CEO, CFO) 0% 0% 16% 50% 11% 23%

Other management (e.g., directors, managers) 0% 0% 18% 55% 11% 16%

Nonmanagement, salaried employees 0% 2% 16% 56% 12% 14%

Nonmanagement, hourly employees 0% 2% 17% 55% 12% 14%

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Note: n = 45. The data in this table represent organizations that conduct credit background checks on all job candidates. Respondents were asked to

round up to the highest year.


When conducting credit background checks on job candidates, in general, how many years of credit history does your organization check?

1 year2–3

years

4–5

years

6–7

years

8–9

years

10 years

or moreJob candidates who will work with children, the elderly, the disabled

and other vulnerable populations 0% 0% 0% 100% 0% 0%

Job candidates who will have security responsibilities (e.g., security

guards, etc.)7% 7% 0% 79% 0% 7%

Job candidates for positions involving national defense or homeland

security0% 0% 9% 64% 0% 27%

Job candidates who will have access to highly confidential employee

information (e.g., salary, benefits, medical information or other

personal information about employees, etc.)

2% 12% 12% 61% 2% 12%

Job candidates for positions with fiduciary and financial responsibility

(e.g., handling cash, banking, accounting, compliance, technology,

etc.)

1% 6% 16% 61% 1% 16%

Job candidates for senior executive positions (e.g., CEO, CFO, CHRO,

etc.)0% 3% 9% 61% 1% 26%

Job candidates who will have access to company or other people's

property or otherwise placed in a position of financial trust (e.g.,

information technology, administrative services, cleaning crews, etc.)

0% 14% 14% 59% 0% 14%

Job candidates who will be employed in safety-sensitive positions

(including operating heavy equipment, transportation, etc.)0% 13% 0% 50% 0% 38%

Job candidates who will work in health care or with access to drugs

(e.g., hospitals, nursing homes, clinics, pharmacies, rehabilitation

centers, etc.)

0% 25% 0% 50% 0% 25%

Job candidates for positions for which applicable state law requires a

background check (e.g., day care teachers, licensed medical

practitioners, etc.)

0% 0% 0% 50% 0% 50%

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Note: n = 4-138. Percentages may not total 100% due to rounding. The data in this table represent organizations that conduct credit background checks on

select job candidates. Data sorted by the 6–7 years column. Respondents were asked to round up to the highest year.


Background Information on Credit Background Checks

• Many employers conduct some kind of background check on job applicants and/or employees.

Background checks may include verification of educational or professional history, contacting

references, obtaining a report on an individual’s criminal history, and/or obtaining a report on an

individual’s credit history.

• The Fair Credit Reporting Act (FCRA) authorizes employers to obtain a consumer report for

“employment purposes” from a consumer reporting agency (CRA) so long as certain disclosure

requirements are met. The term “employment purposes,” means a report that is used for the

purpose of evaluating a consumer for employment, promotion, reassignment or retention as an

employee.

• For some employers, credit payment records serve as a factor in evaluating an individual’s

suitability for a job, while others seek information on driving records, criminal histories, or other

background information. All of these types of reports are considered consumer reports if they are

obtained from a CRA.

• Before procuring a consumer report, FCRA requires employers to clearly disclose, in writing, that a

report may be obtained for employment purposes and get written authorization from the individual.

FCRA also requires that the employer provide the individual with a copy of the report and a written

description of the consumer’s rights before taking any adverse action based in whole or in part on

the report.

• The Federal Trade Commission website has additional information on the rights and duties imposed

by the Fair Credit Reporting Act at (www.ftc.gov/os/statutes/fcradoc.pdf)

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http://www.ftc.gov/os/statutes/fcradoc.pdf


Background Checking: The Implications of Credit Background Checks on the Decision to Hire or Not to Hire

These results summarize two research studies on credit background checks – the Background Checking: Conducting Credit Background Checks data findings which were released January 2010 and a SHRM Poll that was conducted in June 2010 with HR professionals in the employment and recruitment functional area.

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Methodology

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