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August 24, 2010
Background Checking:
The Implications of Credit Background
Checks on Hiring Decisions
Background Checking: The Implications of Credit Background Checks on the Decision to Hire or Not to Hire | ©SHRM 2010
Key Findings
• Most organizations do not conduct credit background checks on all job candidates. Four out of 10
organizations do not conduct background checks at all candidates, 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 or not hire a job candidate 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 checks? Organizations conduct these 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 checks for positions where this information is most job-relevant, regardless
of industry.
• Do employers use credit checks to screen out mass numbers of candidates in the early phases of
the application process? No; at least 87% of organizations initiate credit 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 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.
2
Background Checking: The Implications of Credit Background Checks on the Decision to Hire or Not to Hire | ©SHRM 2010
Key Findings
• Not 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 of four to seven
years overall: 33% of organizations reported that up to six or seven years of credit history were most
influential in their organization’s assessment of the job candidate’s credit standing, and 27% reported that up
to four or five years of credit history were 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.
3
Background Checking: The Implications of Credit Background Checks on the Decision to Hire or Not to Hire | ©SHRM 2010 4
In general, when making a hiring decision about a job candidate, which are the most important factors affecting 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% 100%
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)
Favorable reference background check results (e.g., verification of employment history)
Excellent performance during the interview (e.g., professional demeanor, good communication skills)
Specific skills/expertise needed for the job (e.g., technical skills, communication skills)
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.
Background Checking: The Implications of Credit Background Checks on the Decision to Hire or Not to Hire | ©SHRM 2010
In general, when making a hiring decision about a job candidate, which are the most important factors affecting 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 the 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 the most important factor influencing
the final decision to hire a particular candidate over another.
5
Comparison by Organization’s Region and Industry
Background Checking: The Implications of Credit Background Checks on the Decision to Hire or Not to Hire | ©SHRM 2010
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%
6
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 and
those with access to highly confidential employee information (see slide 6). Only 13% of organizations
conduct credit background checks on all job candidates.
Background Checking: The Implications of Credit Background Checks on the Decision to Hire or Not to Hire | ©SHRM 2010
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 (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)
Job candidates for positions for which state law requires a background check (e.g., day care
teachers, licensed medical practitioners)
Job candidates who will have access to company or other people's property or otherwise be
placed in a position of financial trust (e.g., information technology, administrative services)
Job candidates who will have access to highly confidential employee information (e.g., salary,
benefits, medical information or other personal information about employees)
Job candidates for senior executive positions (e.g., CEO, CFO, CHRO)
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
t00% as respondents were allowed multiple choices.
•Those candidates applying for positions with financial responsibility (91%), senior executive positions (46%)
and 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
and are not unique to only financial institutions.
Background Checking: The Implications of Credit Background Checks on the Decision to Hire or Not to Hire | ©SHRM 2010
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 two primary reasons that organizations conduct credit background checks are to
reduce/prevent theft and embezzlement and to reduce liability for negligent hiring.
Background Checking: The Implications of Credit Background Checks on the Decision to Hire or Not to Hire | ©SHRM 2010
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 NOT to 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 between
six and seven years of credit history were most influential and 27% reported that between four and five years were
most influential (see slide 12).
Background Checking: The Implications of Credit Background Checks on the Decision to Hire or Not to Hire | ©SHRM 2010
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 the job interview
Varies by job level
After the job interview but before the job offer
After a contingent job offer
1%
3%
9%
30%
57%
10
Note: n = 199
Background Checking: The Implications of Credit Background Checks on the Decision to Hire or Not to Hire | ©SHRM 2010
Does your organization allow job candidates, in certain circumstances, the opportunity to explain the results of their consumer report (e.g., high debt, bankruptcy) 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%
11
Note: n = 197
•Before the hiring decision has been made, 65% of organizations allow job candidates to explain the
results of their credit background check (obtained via their consumer report); 22% allow job candidates
to explain the results of their credit background checks after the hiring decision has been made.
Background Checking: The Implications of Credit Background Checks on the Decision to Hire or Not to Hire | ©SHRM 2010
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?
12
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 2–3 years
Up to 4–5 years
Up to 6–7 years
Up to 8–9 years
Up to 10 years or more
17%
0%
14%
27%
33%
3%
5%
•When examining credit background checks, organizations focus on trends of the individual’s financial
behavior. In fact, organizations indicated that current outstanding judgment(s) (64%) and accounts in debt
collection (49%) have 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.
Background Checking: The Implications of Credit Background Checks on the Decision to Hire or Not to Hire | ©SHRM 2010
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%
13
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.
Background Checking: The Implications of Credit Background Checks on the Decision to Hire or Not to Hire | ©SHRM 2010
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)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)
2% 12% 12% 61% 2% 12%
Job candidates for positions with fiduciary and financial responsibility
(e.g., handling cash, banking, accounting, compliance, technology)1% 6% 16% 61% 1% 16%
Job candidates for senior executive positions (e.g., CEO, CFO,
CHRO)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)
0% 14% 14% 59% 0% 14%
Job candidates who will be employed in safety-sensitive positions
(operating heavy equipment, transportation)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)
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)
0% 0% 0% 50% 0% 50%
14
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 Checking: The Implications of Credit Background Checks on the Decision to Hire or Not to Hire | ©SHRM 2010
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 web site has additional information on the rights and duties
imposed by the Fair Credit Reporting Act at (www.ftc.gov/os/statutes/fcradoc.pdf)
15
Background Checking: The Implications of Credit Background Checks on the Decision to Hire or Not to Hire | ©SHRM 2010
Background Checking: The Implications of Credit Background Checks on Hiring Decisions
These results summarize two research studies on credit background checks—the Background Checking: Conducting Credit Background Checks data findings, which were released in January 2010, and a SHRM poll that was conducted in June 2010 with HR professionals in the employment and recruitment functional area.
16
Methodology
For more poll findings, visit: www.shrm.org/surveys
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