Background Checking—The Use of Credit Background Checks in Hiring Decisions

The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012

July 19, 2012

SHRM Survey Findings: Background Checking—The Use of Credit Background Checks in Hiring Decisions

The Use of Credit Background Checks in Hiring Decisions ©SHRM 2012 2

Key Findings

What are the most important factors influencing the final decision to hire a particular job candidate over another? The three most important factors that influence the final decision to hire one candidate over another are 1) previous work experience, 2) a good fit with the job and the organization, and 3) specific skills expertise needed for the job.

Do organizations conduct credit background checks on job candidates? Slightly more than one-half (53%) of organizations do not conduct credit background checks on any of their job candidates. This represents a large decrease in the use of credit background checks: in 2010, only 40% did not conduct credit background checks, and in 2004, this percentage was 39%. Thirty-four percent of organizations reported that they conduct credit checks on select job candidates and only 13% conduct credit checks on all job candidates.

When do organizations initiate credit background checks? Of the organizations that conduct credit background checks, most organizations initiate credit background checks after a contingent job offer (58%) or after the job interview (33%). Very few organizations (2%) initiate credit background checks before a job interview.

Why do organizations conduct credit background checks? The top two reasons organizations conduct credit checks on job candidates are 1) to reduce/prevent theft and embezzlement (45%) and 2) to reduce legal liability for negligent hiring (22%).


Key Findings

On which category of job candidates do organizations conduct credit background checks? Of the organizations that conduct background checks on select job candidates (34%), 87% conduct credit checks on candidates applying for positions with financial responsibilities, 42% on candidates applying for senior executive positions and 34% on candidates for positions with access to highly confidential employee information.

Do organizations hire job candidates whose credit reports contain information that presents their financial situation negatively? 80% of organizations reported that they have hired a job candidate whose credit report contained information that reflects negatively on the candidate’s financial situation, suggesting that negative credit information is not often a barrier to hiring.

How many years of credit history are organizations interested in? Overall, most organizations that use credit checks focus on credit history of two to seven years. Twenty-one percent of organizations reported that two to three years were most influential in their assessment of a job candidate’s credit standing, 27% reported four to five years were most influential, and 31% reported up to seven years were most influential in their assessment of a candidate’s credit standing. Only 6% of organizations indicated that all years of credit history were equally important, a decrease from 17% in 2010.

Do organizations allow job candidates to explain the results of credit checks? Yes; 64% of organizations allow job candidates to explain the results of their credit checks before the decision to hire or not to hire is made, and 28% allow job candidates to explain the results after the decision to hire or not to hire is made.


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 (e.g., credit history)

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

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

Education directly applicable to the job

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

Performance during the interview (e.g., professional demeanor, good communication skills)

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

A good fit with the job and organization

Previous work experience directly applicable to the job

9%

29%

44%

35%

47%

67%

80%

85%

82%

14%

51%

59%

60%

60%

78%

78%

86%

87%

2012 (n = 385)

2010 (n = 518)

Note: Percentages do not equal 100% due to multiple response options.


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?

Comparisons by organization sector

Nonprofit organizations are more likely than privately owned for-profit organizations to select favorable reference background check results as the most important factor influencing the final decision to hire a particular candidate over another .

Comparisons by organization sector

Nonprofit (74%) > Privately owned for-profit (55%)

Note: Only statistically significant differences are shown.


Does your organization, or an agency hired by your organization, conduct credit background checks for any job candidates?

All job candidates

Select job candidates

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

13%

47%

40%

13%

34%

53%

2012 (n = 430)2010 (n = 343)

Note: Respondents who answered “not sure” were excluded from this analysis.


Does your organization, or an agency hired by your organization, conduct credit background checks for any job candidates?

Comparisons by organization staff size

2,500 to 24,999 employees (45%) > 100 to 499 employees (25%)

Comparisons by organization staff size

Organizations with 2,500 to 24,999 employees are more likely than organizations with 100 to 499 employees to conduct credit background checks for select job candidates.

Note: Only statistically significant differences are shown.


The Use of Credit Background ChecksA Comparative Look: 2012, 2010 and 2004

2012 2010 2004

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

*Survey margin of error: +/- 4%

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


In general, how frequently does your organization, or an agency hired by your organization, check any of the following references for its job candidates? Credit Checks


All job candidates (13%)

Select job candidates (34%)

No (53%)

All job candidates (13%)

Select job candidates (47%)

No (40%)

Always (19%)

Sometimes (24%)Rarely (18%)

Never (39%)

Note: n = 430. Respondents who answered “not sure” were excluded from this analysis. Source: SHRM Background Checking Survey—Credit Checks (2012)

Note: n = 343. Respondents who answered “not sure” were excluded from this analysis.Source: SHRM Background Checking Survey —Credit Checks (2010)

Note: n = 296. Respondents who answered “don’t know” were excluded from this analysis.Source: SHRM Reference and Background Checking Survey (2004)

42%


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

Other

After the completion of a job application but before a job interview

Varies by job level

After a job interview but before a job offer

After a contingent job offer

1%

3%

9%

30%

57%

4%

2%

3%

33%

58%

2012 (n = 171)

2010 (n = 199)


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

Other

To comply with credit card processor standards (PCI)**

To comply with applicable state law requiring a background check for a particular position (e.g., day care teachers, licensed medical practitioners)

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

4%

3%

7%

19%

22%

45%

0.07

0.12

0.27

0.54

2012 (n = 162)2010 (n = 195)

Note: ** Response option was not available in 2010.


Has your organization ever hired a job candidate with information on his or her credit report that presented the job candidate’s financial situation negatively?

No, 20%

Yes, 80%

Note: n = 101. Respondents who answered “not sure” were excluded from this analysis.


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?

Note: The data in this chart represent organizations that conduct credit background checks on select or all job candidates. Respondents were asked to round up to the highest year. Percentages do not equal 100% due to rounding.

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%

6%

2%

21%

27%

31%

4%

8%

2012 (n = 157)

2010 (n = 230)


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

10 years or more

8-9 years

6-7 years

4-5 years

2-3 years 1 year

Executive/upper management (e.g.,CEO, CFO)

2012 33% 6% 43% 16% 2% 0%

2010 23% 11% 50% 16% 0% 0%

Other management (e.g., directors,managers)

2012 29% 6% 48% 13% 4% 0%

2010 16% 11% 55% 18% 0% 0%

Nonmanagement salaried employees

2012 23% 4% 53% 15% 4% 0%

2010 14% 12% 56% 16% 2% 0%

Nonmanagement hourly employees

2012 24% 4% 49% 18% 4% 0%

2010 14% 12% 55% 17% 2% 0%

Note: n = 45 - 49. 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. Percentages may not equal 100% due to rounding.


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

No, not at any time

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

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

13%

22%

65%

8%

28%

64%

2012 (n = 168)

2010 (n = 197)


Credit Background Checks Conducted on Select Job Candidates


On which category of job candidates does your organization conduct credit background checks?

Other

Job candidates who will work in health care or with access to drugs (e.g., hospitals, nursing homes, clinics, pharmacies, rehabilitation centers)

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

Job candidates for positions involving national defense or homeland security

Job candidates who will be employed in safety-sensitive positions (including operating heavy equipment, transportation, etc.)

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 security responsibilities (e.g., security guards)

Job candidates who will have access to company or other people's property or otherwise placed in a position of financial trust (e.g., IT, admin. 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%

8%

5%

11%

9%

30%

34%

46%

91%

6%

1%

2%

5%

6%

10%

11%

25%

34%

42%

87%

2012 (n = 146)2010 (n = 158)

Note: The data in this figure represent organizations that conduct credit background checks on select job candidates. Percentages do not equal 100% due to multiple response options.


In general, after conducting credit background checks, if information that presented the job candidate’s financial situation negatively were discovered, what information is MOST likely to affect your decision to NOT extend a job offer?

Note: n = 23-123. The data in this table represent organizations that conduct credit background checks on select or all job candidates. Data are sorted by the “Accounts in debt collection” column. Caution should be used when generalizing results when the sample size is less than 30 for any category. Percentages may not equal 100% due to rounding.

Accounts in

debt collection

Current outstanding judgment(s)

High debt-to- income ratio Bankruptcy Tax liens Medical-

related debtEducation-

related debt Foreclosures

Job candidates for positions for which applicable state law requires a background check (e.g., day care teachers, licensed medical practitioners) (n = 33)

61% 18% 9% 3% 3% 3% 3% 0%

Job candidates who will work in health care or with access to drugs (e.g., hospitals, nursing homes, clinics, pharmacies, rehabilitation centers) (n = 23)

57% 13% 13% 4% 0% 9% 4% 0%

Job candidates for positions involving national defense or homeland security (n = 23) 52% 9% 13% 17% 4% 0% 4% 0%

Job candidates who will have security responsibilities (e.g., security guards) (n = 33) 52% 27% 12% 3% 3% 0% 3% 0%

Job candidates who will work with vulnerable populations (e.g., children, the elderly, the disabled) (n = 25)

48% 28% 12% 4% 0% 4% 4% 0%


In general, after conducting credit background checks, if information that presented the job candidate’s financial situation negatively were discovered, what information is MOST likely to affect your decision to NOT extend a job offer? (continued)

Accounts in

debt collection

Current outstanding judgment(s)

High debt-to- income ratio Bankruptcy Tax liens Medical-

related debtEducation-

related debt Foreclosures

Job candidates who will have access to company or other people's property or otherwise placed in a position of financial trust (e.g., IT, administrative services, cleaning crews) (n = 74)

42% 31% 15% 7% 4% 0% 1% 0%

Job candidates who will be employed in safety-sensitive positions (including operating heavy equipment, transportation, etc.) (n = 27) 41% 30% 19% 7% 0% 4% 0% 0%

Job candidates for senior executive positions (e.g., CEO, CFO, CHRO) (n = 90) 38% 21% 17% 16% 7% 0% 2% 0%

Job candidates for positions with fiduciary and financial responsibility (e.g., handling cash, banking, accounting, compliance, technology) (n = 123)

36% 22% 20% 16% 6% 0% 1% 0%

Job candidates who will have access to highly confidential employee information (e.g., salary, benefits, medical information or other personal information about employees) (n = 75)

31% 40% 9% 12% 7% 0% 1% 0%

Note: n = 23-123. The data in this table represent organizations that conduct credit background checks on select or all job candidates. Data are sorted by the “Accounts in debt collection” column. Caution should be used when generalizing results when the sample size is less than 30 for any category. Percentages may not equal 100% due to rounding.


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

10 years or more 8-9 years 6-7 years 4-5 years 2-3 years 1 year

Job candidates for positions involving national defense or homeland security (n = 7)

2012 14% 0% 71% 0% 14% 0%

2010 27% 0% 64% 9% 0% 0%

Job candidates for positions for which applicable state law requires a background check (e.g., day care teachers, licensed medical practitioners) (n = 13)

2012 8% 0% 69% 23% 0% 0%

2010 50% 0% 50% 0% 0% 0%

Job candidates for positions with fiduciary and financial responsibility (e.g., handling cash, banking, accounting, compliance, technology) (n = 122)

2012 17% 4% 52% 17% 9% 0%

2010 16% 1% 61% 16% 6% 1%

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) (n = 35)

2012 17% 3% 43% 26% 9% 3%

2010 14% 0% 59% 14% 14% 0%

Job candidates who will have security responsibilities (e.g., security guards) (n = 14)

2012 29% 0% 43% 21% 7% 0%

2010 7% 0% 79% 0% 7% 7%

Job candidates for senior executive positions (e.g., CEO, CFO, CHRO,) (n = 59)2012 34% 3% 41% 15% 7% 0%

2010 26% 1% 61% 9% 3% 0%

Job candidates who will have access to highly confidential employee information (e.g., salary, benefits, medical information or other personal information about employees) (n = 49)

2012 20% 4% 39% 20% 14% 2%

2010 12% 2% 61% 12% 12% 2%

Job candidates who will be employed in safety-sensitive positions (including operating heavy equipment, transportation, etc.) (n = 8)

2012 12% 0% 38% 38% 12% 0%

2010 38% 0% 50% 0% 13% 0%

Job candidates who will work with vulnerable populations (e.g., children, the elderly, the disabled) (n = 3)

2012 0% 0% 33% 33% 33% 0%

2010 0% 0% 100% 0% 0% 0%

Job candidates who will work in health care or with access to drugs (e.g., hospitals, nursing homes, clinics, pharmacies, rehabilitation centers) (n = 2)

2012 100% 0% 0% 0% 0% 0%

2010 25% 0% 50% 0% 25% 0%

Note: n = 2-122. The data in this table represent organizations that conduct credit background checks on select job candidates. Data sorted by 2012 data in the 6-7 years column. Respondents were asked to round up to the highest year. Caution should be used when generalizing results when the sample size is less than 30 for any category. Percentages may not equal 100% due to rounding.


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)

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


Demographics: Organization Industry

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Note: n = 386. Percentages do not equal 100% due to multiple response options.

Percentage

Manufacturing 19%

Health care and social assistance 17%

Professional, scientific and technical services 12%

Other services except public administration 10%

Educational services 9%

Finance and insurance 7%

Retail trade 5%

Public administration 4%

Transportation and warehousing 4%

Religious, grantmaking, civic, professional and similar organizations 4%

Accommodation and food services 3%


Demographics: Organization Industry (Continued)

22

Percentage

Arts, entertainment and recreation 3%

Utilities 3%

Administrative and support and waste management and remediation services 2%

Construction 2%

Information 2%

Wholesale trade 2%

Agriculture, forestry, fishing and hunting 2%

Real estate and rental and leasing 2%

Repair and maintenance 2%

Mining 1%

Management of companies and enterprises 1%

Note: n = 386. Percentages do not equal 100% due to multiple response options.


Demographics: Organization Sector

Other

Government sector

Publicly owned for-profit organization

Nonprofit organization

Privately owned for-profit organization

3%

5%

18%

24%

51%

23

Note: n = 386. Percentages do not equal 100% due to rounding.


Demographics: Organization Staff Size

25000 or more employees

2,500 to 24,999 employees

500 to 2,499 employees

100 to 499 employees

1 to 99 employees

5%

17%

14%

40%

24%

24

n = 375


Demographics: Other

25

Does your organization have U.S.-based operations (business units) only or does it operate multinationally?U.S.-based operations only 76%Multinational operations 24%n = 386

Is your organization a single-unit organization or a multi-unit organization?Single-unit organization: An organization in which the location and the organization are one and the same

36%

Multi-unit organization: An organization that has more than one location 64%

n = 387

For multi-unit organizations, are HR policies and practices determined by the multi-unit headquarters, by each work location or both?

Multi-unit headquarters determines HR policies and practices 56%

Each work location determines HR policies and practices 4%

A combination of both the work location and the multi-unit headquarters determine HR policies and practices

40%

n = 257

What is the HR department/function for which you responded throughout this survey?Corporate (companywide) 71%Business unit/division 15%Facility/location 15%Note: n = 256. Percentages do not equal 100% due to rounding.


Response rate = 19%

Sample composed of 544 randomly selected HR professionals from SHRM’s membership

Margin of error +/-4%

Survey fielded December 28, 2011-February 7, 2012

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Methodology

Background Checking—The Use of Credit Background Checks in Hiring Decisions

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Project leader: Justina Victor, survey research analyst, SHRM Research

Project contributors: Evren Esen, manager, SHRM ResearchMark Schmit, Ph.D., SPHR, Vice President, SHRM Research

Copy editor: Katya Scanlan , SHRM Knowledge Center

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Economy & Finance

Background Checking—The Use of Credit Background Checks in Hiring Decisions