Risky Business Should a prospective employee's credit history determine whether he or she gets the job?

Screening job applicants used to be about checking resumes andreferences. Now, nervous employers are going a step further,running credit checks to weed out potential problem employees.Under current law, employers can reject applicants on the basis oftheir personal credit. But to what extent should an applicant'scredit history influence a hiring decision? Obtaining a creditreport is one thing; interpreting it is another.

Assessing credit history becomes a judgment call by those doingthe hiring, says Frederick Lane, a former attorney and the authorof The Naked Employee: How Technology Is Compromising Work-placePrivacy (Amacom). Distinguishing danger signs from everydayfinances isn't easy.

Credit history says a lot about a person, including whether ornot they would make a good employee, contends Howard Dvorkin,president of Consolidated Credit Counseling Services Inc., a FortLauderdale, Florida, group that helps debtors get their finances inorder. "People who have financial pressures are lessproductive than those who have none," Dvorkin says.

Running a credit check is another way to find a good,responsible employee when you consider the average American holds$8,000 in credit card debt, and personal bankruptcies have hit arecord-high 1.61 million filings within the past year. Among otherthings, a credit report reveals payment history as well as courtjudgments, liens and bankruptcies.

It makes sense to run a credit check in somejobs-management-level, banking or accounting positions, forexample-where responsibility and integrity with money are key. Butbe careful if you're hiring an entry-level employee whowon't have access to cash or the authority to spend it, saysMichael W. Droke, head of the Employment & Labor Practice Groupin the Seattle office of Dorsey & Whitney LLP.Credit checks that aren't clearly linked to a job descriptioncan send you into dangerous territory.

And credit reports aren't free of errors: A 2000 study bythe Consumers Union, publisher of Consumer Reports Magazine,found more than 50 percent of credit reports contain inaccuraciessuch as mistaken identity, misapplied charges and uncorrectederrors. "One in five consumers is at risk for errors in acredit report. That's a lot of people," says Pam Dixon, aresearch fellow for the Privacy Foundation, a Denver foundationthat studies how comunications technologies and services pose athreat to personal privacy.

During the interview process, ask applicants to verify thattheir credit reports are correct. You must get an applicant'spermission in writing before obtaining a credit report. There'salways a story behind the numbers, and you may find some huge grayareas. For example, what if an applicant was a victim of identitytheft four years ago, and it's still affecting his or hercredit today? (The FTC received more than 86,000 complaints ofidentity theft in 2001 alone.) It's important to dig deeper soyou don't automatically reject questionable candidates, Lanesays.

If you decide to reject applicants based on their credithistory, the Fair Credit Reporting Act (FCRA) requires you tonotify them of your decision before you deny employment. You'realso required to send rejected applicants a copy of their creditreport, a summary of their rights under the FCRA and the contactinformation for the credit agency that supplied the credit report.Rejected applicants must also be told they have 60 days to disputeany inaccurate or incomplete information in the credit report youused to reject them. With the chance for error in credit reports,many employment attorneys are discouraging business owners fromrejecting applicants based solely on credit, Dixon says.

Finally, there's the issue of medical information that canbe inferred from credit reports. "You wouldn't believe thenumber of people whose medical bills have gone to collection whilethey wait for insurance companies to [pay]," Dixon says.It's information a rejected applicant could use as the basis ofa discrimination claim. So look beyond the numbers to giveotherwise good applications due credit.