Using credit checks as a factor in the hiring process has always been controversial. According to data from the Society of Human Resource Management (SHRM), 47% of employers in the U.S. run credit checks on potential hires. Critics argue that using credit checks on candidates is discriminatory by unfairly filtering out people who are struggling financially. The thinking goes that, in order to repair their credit, job seekers need jobs, but eliminating candidates based on bad credit makes this much more difficult. More importantly, there is no evidence that credit checks relate to job performance in the first place. The result: employers cannot prove a credit check adheres to the rule of “job-relatedness,” which is required for any factor used in hiring decisions.
With this in mind, New York City recently passed legislation banning most employers from using credit checks to discriminate against job applicants or current employees. Brad Lander, the bill’s sponsor, calls the new legislation “a civil rights bill,” and it seems likely that more cities will follow New York City’s example. If background credit checks for job candidates continue to lose support across the country, employers will likely stop using them in the hiring process. Overall, this is a positive development for recruiters because credit checks have little utility as a means of predicting future job performance, and frankly it’s about time they be discarded as a variable in making employee selection decisions. More predictive criteria, like pre-employment tests, can help fill the void: well validated and professionally developed employment tests are far more predictive of job performance, resulting in job-related and legally defensible tools for the employer that are less biased and fairer to job candidates.