Credit Checks in Employee Selection (Part 2 of 2): Applicant Reactions

Summary by: Ian B. Mondrow, M.A.

Selection tests that have little face validity can kill an applicant's attraction to a job opening or organization. Using a sample of 126 students. Nielsen and Kuhn decide to evaluate the perception of credit reports as a selection tool.

Participants were give one of two job descriptions. Both of the descriptions provided a summary of the job and the organization's history. The only difference between the two documents was that one of them mentioned handling money as one of the job's responsibilities. Participants were randomly assigned to each group and informed that they were invited to an interview where the hiring manager asked him/her to sign a waiver permitting a credit check. They were asked a series of questions of a 7-point scale.

In general, it was found that participants had negative reactions to the credit check as they felt it was unfair, did not predict performance, was not related to the job and was an invasion of privacy. They did believe that employers use credit checks as a way to verify responsibility and reliability in job candidates Including budgeting in the job description did not increase the credibility of the credit report.

 However, 51% of the participants were confident that their credit history would appeal to the hiring organization. Unfortunately, individuals did not feel they knew what a credit report would cover (M = 2.12,  SD = .78). Those who emphasized an understanding of credit checks were more likely to perceive them as a fair selection tool, F = 10.22, p <.01, and had a significant level of face validity, F = 7.11, p < .01. There was no relationship between credit history knowledge and perceived accuracy, invasiveness or predictive validity.

IMPLICATIONS FOR HUMAN RESOURCE (HR) PROFESSIONALS

Based on this study's findings, HR professionals should be cautious in utilizing credit checks. Appliants appear questionable in the use of credit checks and feel that it is intrusive. Content in job descriptions provides no variation on this outlook. Therefore, it may be beneficial for hiring managers to explain the usage of credit checks and how the information will be utilized in the hiring process. Managers should also encourage job applicants to ask for a copy of the report to make them feel more at ease.  Many times, applicants are handed the consent form but have no real conversation of the credit checks. It appears that elaborating on its use and how it will benefit the position can overcome any fears shared by applicants. 






Source: Nielsen, M.L., and Kuhn, K.M. (2009). Late payments and leery applicants: credit checks as a selection test.  Employ Respons Rights J, 21, 115-130.

Credit Checks in Employee Selection (Part 1 of 2)

Summary By: Ian B. Mondrow, M.A.

A selection test is a process that employers implement to hire job candidates or make promotion decisions. In national survey of retail employer, it was found that 48% of the participants utilized credit checks as a selection tool in 2005 (Hollinger & Langton, 2006 as cited in Nielsen & Kuhn, 2009). This number has likely increased since then. Unlike most selection test, a credit check does not ask candidates any questions and does not allow for any answers. Credit checks provide information on an individuals financials including credit cards, mortgage debt, payment history, previous addresses and previous employers. Unlike traditional credit checks, an employer will not receive any calcuated credit scores. The date of birth is also not included. Some employers use credit reports to merely verify employment history and previous addresses, while others use them as a formal selection tool.

Credit checks have become a standard process in hiring for many organization and therefore it is vital for every individual to know the legal implications behind this process. According to the Fair Credit Reporting Act (FCRA), an employer cannot check one's credit score without obtaining signed permission from the candidate, offering the candidate a copy of the report and inform individuals if the report had any basis for not hiring/promoting them. In addition, federal law prohibits employers from discriminating against an individual has filed for bankruptcy.  Since a credit report is not a series of questions, it is not possible to establish criterion validity and therefore it can be difficult to prove that the report is related to a job. As a result, some states have laws stating that credit reports can not be obtained unless "substantially job-related" to the position. In 2007, this law was passed in the State of Washington as Senate Bill 5827.

There are several perspectives as to why credit checks are used in the selection process: (1) employees  facing financial issues will be more likely to steal and (2) the credit check can be representative of one's consciousness and responsibility. Currently, there are no studies validating that credit checks are related to any personality traits but previous studies have found that credit scores have a positive correlation with counterproductive employee behavior and absenteeism.

To make matters more complicated, credit checks may increase an employers probability of adverse impact as some minorities are more likely to have poor credit histories (Gallagher, 2006 as cited in Nielsen & Kuhn, 2009). If adverse impact is present, employers must prove that a credit check predicts successful job performance. Furthermore, majority of credit reports contain one or more mistakes with one out of four containing a serious error. Therefore, the information may not even be correct!


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Source: Nielsen, M.L., and Kuhn, K.M. (2009). Late payments and leery applicants: credit checks as a selection test.  Employ Respons Rights J, 21, 115-130.