The nature of recruitment and hiring has undergone some large shifts over the last five years. From the economic and social disruption of a global health crisis to the spread of remote work, employers and job applicants alike have had to navigate new challenges. For businesses, having the right solutions for identifying individuals to hire has only grown more important. Where do credit checks for employment fit into this shifting landscape?
Today, pre-employment background checks are a central element of many hiring workflows. Some businesses check an applicant’s credit history for certain types of roles as a part of the background check process.
Let’s examine why employers use these solutions, the state of federal law on the subject, and then explore how the role of credit checks has changed in some ways and remained the same in others.
Employers don't generally receive someone's fully-detailed report, nor do they see credit scores. Instead, employers receive information on facts such as whether an applicant has gone bankrupt, their recent credit inquiries, balances and payment histories. This information can be a valuable part of assessing someone's suitability for certain roles, such as those with access to company funds.
According to the major credit bureau Experian, employers most commonly check an individual applicant's credit for several reasons. One reason is that credit reports can help an employer assess an individual's debt load and how they manage that debt, including whether they're consistent or not with on-time payments. Such information can illuminate someone's skill (or problems) with handling money and their financial responsibility, which could prove especially relevant for positions of financial responsibility where the risk of fraud or theft may be higher.
Federal law does not prohibit the usage of credit checks for employment purposes. From the federal government's perspective, credit checks remain an available option for employers so long as the business does not illegally discriminate against job applicants and they comply with the requirements of the FCRA, as applicable.
In the last five years, there have been some attempts to change federal law on the subject. The "Restricting Credit Checks for Employment Decisions Act," introduced into Congress in 2020, would have amended the FCRA substantially. The bill would have outlawed the use of credit checks for almost all employment purposes. Though the proposal passed in the House of Representatives, no further action on the bill occurred in the Senate. Since then, no subsequent efforts to modify the FCRA in such a way have gained traction.
Remember, employers should remain aware of their obligations under the FCRA as they relate to credit checks and background reports more generally.
Under the Fair Credit Reporting Act, employers have certain obligations when they wish to obtain a credit report from either a background check company or a credit bureau. These rules reflect similar requirements for obtaining a broader background check, such as one containing a criminal history report for employment purposes. For example, under the FCRA, employers who wish to obtain a consumer’s credit report must do the following:
The final adverse action notice must include information about the action taken, specific contact information for the consumer agency that furnished the report, a statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the consumer the specific reasons why the adverse action was taken, and information on the consumer’s right to dispute and right to obtain a free copy of their report within 60 days [1].
A periodic review and audit of compliance procedures can help ensure an employer's processes remain aligned with evolving guidance on the FCRA related to credit and background checks.
Many states, and some local jurisdictions, place restrictions on employers wishing to review a candidate’s credit report as part of an employment decision. Most of the state-level laws that restrict credit checks for employment came into force in the 2010s and remain in effect today. Since 2020, fewer additional efforts to enact new laws have taken place. There have been some efforts, however.
In 2024, the state of Massachusetts evaluated a proposal to enact a wide-ranging ban on credit checks for employment. If passed, it would have been among the most restrictive bans nationwide. Though the Massachusetts House of Representatives passed the bill, the state Senate did not advance the law out of committee. While subsequent legislative sessions may try to revive the bill, the state of the law in Massachusetts remains unchanged at the start of 2025.
The city of Philadelphia amended its ban on credit checks in 2021 to remove special exceptions for law enforcement or financial services positions and align required adverse action processes with the requirements of the Fair Credit Reporting Act.
Employers considering using credit reports in employment decisions are encouraged to consult with legal counsel to make sure they do so only as permitted by the laws that apply to them.
Some employers may place more of their focus on verifying specific aspects of an applicant's skills, job history, and education over credit history. Employers who review credit history also use these solutions as part of a thorough process, however, and for good reason. With evidence that many applicants falsify information on resumes and applications, there is a greater focus on verifications as a core part of the background check. A hiring manager could see these elements as potentially more valuable and more informative than credit history. Verification services can reveal hard facts that could have a greater impact on an individual's suitability than their credit history for most roles. Some of those facts include:
While credit checks remain an option in most of the United States, hiring managers could increasingly see verifiable facts and their potential to uncover dishonesty as more indicative of applicant quality and reliability. As a result, credit checks for employment remain largely centered on position of elevated responsibility and access to sensitive information and those with a high degree of financial access.
For many employers, hiring processes broadly focus on assessments of risk and suitability that center around criminal records and resume verification. Credit checks, restricted in some states, may still possess value when evaluating individuals for positions of financial responsibility or high risk. In using such solutions, employers must continue to navigate federal, state, and local compliance obligations.
Credit history checks can reveal risk factors that may be relevant for some job roles, such as those with access to financial data or confidential or proprietary information. However, they may not be relevant for all roles a business needs to fill. In these cases, employers may choose to focus on other screening services, such verification services, which offer confirmation of concrete facts that are relevant to the role the applicant is being considered for.
[1] 15 U.S.C. § 1681m(a)