Is it ethical to review an applicant's credit score as hiring criteria?

I won't comment on the pros and cons of using credit scores alone to evaluate prospective employees. But one measure of whether the practice is ethical is whether it is legal, and it is under certain circumstances. Those circumstances are governed by federal and state law.

As you might expect, state law varies depending on where you and/or the applicant is. For example,Hawaii, Illinois, Oregon, and Washington have recently enacted laws limiting the use of credit history in making employment decisions, and you need to consult the applicable law to know if you can consider credit scores or other credit-related information.

The main federal law that is applicable is the Fair Credit Reporting Act. The FCRA limits the circumstances under which credit information may be sought by employers. For example, a notice must be given to the prospective employee and an authorization given to the employer by that person in advance of the employer's obtaining a credit report from a third party. FCRA also limits the way in which that information may be used, and requires certain notice to be given to a prospective employee if an employer uses it to make an adverse employment decision, including a decision not to hire.

Another federal law that is worthwhile to be aware of is Title VII of the Civil Rights Act of 1964, which general prohibits discrimination based on race and other factors. The Equal Employment Opportunity Commissions takes the position that use of credit information in hiring may create a disparate discriminatory impact on, e.g., African-Americans, who historically have been denied credit for discriminatory reasons.

Finally, it is important to remember that the law prohibits an employer from taking adverse action against an employee or prospective employee based on the fact that that person has filed a petition for bankruptcy protection. That law exists to protect people from exercising what is a key federal right to declare bankruptcy.

All of this may sound onerous, but the reputable employers large and small that I counsel each day properly obtain and use this kind of information every day in making hiring decision. Indeed, using information about a person's credit history may be required when the prospective employee is being hired for a position in which s/he will have access to the employer's funds, e.g., cashiers, chief financial officers.

If legal advice is needed about the specifics of the situation you are raising, you may want to talk with your in-house or outside counsel. You're welcome to contact me off-line as well.

I hope this is helpful.

For the most part, no. Credit reports often tell us more about the bad management decisions of former employers than it does about the applicants.

Thanks Chris for the legal perspective which should never be over looked.

If this is considered a legal practice anywhere, they need to change the law to make it illegal. I think an employer has no business requiring a person's credit score or report as a basis for hiring.. Look all you employers who feel otherwise.. take a real hard look at our economy. People are struggling now to pay their bills, plenty have lost their homes to foreclosures and now you want to kick them when they're already down? They need a job so as it will obviously help them with their credit.. did that ever occur to you? You have no right and no business making this a prerequisite for employment.. that is NONE of your freaking business.. This is highly unethical and you should be reprimanded for this. I wouldn't be surprised if you were ultimately sued in court because this ranks right up there with discrimination. Any employer who requires this information needs to get their heads out of their arses.. how ignorant and disgusting you truly are.. you have no clue and cannot relate to the people.. If you disagree, well then, you are a pompous ass.

I would never hire anyone who had a 700 or ABOVE FICO score....too anal retentive

is it legal? yes. is it ethical? yes. is it meaningful to employers? rarely. cut the cost, stop wasting time. it's not worth it.

Again I agree with Charlie, I think it is both legal and ethical. I also agree in most cases it is nothing more than a revenue generating opportunity for the companies that do credit reporting.
There are specific jobs that by their licensing requirements or their nature make a credit check worthwhile. In most situations it adds little or no value.
You should also be sure the people "interpreting" the scores are qualified to do so.
Correlating someone's "character" to their credit score has about the same relevance as their zodiac sign or IQ

I agree. It is both legal and ethical but should only be used for public service jobs (Police and Fire) and jobs where people handle cash or have access to bank accounts. For the average job it is a waste of money.

Glenn

If there is no tie to the actual work that will be performed by the candidate, then why do you need to know anything about one's credit score? I don't see it as being a bona fide occupational qualification unless the person is being hired to manage money - i.e. an investment broker or something like that.

Glenn, I agree with you totally. In 25 yrs of HR experience, I have only used credit info for background checks on those potential employees that will handle $$$ and/or be able to sign checks, or have fiduciary responsibilities within the company.