About half of US employers review information from credit reports, including collection items, as part of their hiring process. Given how widespread these preemployment credit checks appear to be—and the fact that a quarter of US adults with a credit report have debt in collections on their credit report—these credit checks could have the potential to critically impact economic security for workers. Workers with low incomes could be disproportionately impacted because they are most likely to have late payments listed on their credit reports and have the highest amounts in collections. 

This brief provides an introduction to preemployment credit checks for practitioners working to support individuals with low incomes who may be affected by this practice. The brief provides a description of what preemployment credit checks are and how they are used. It also gives a brief overview of the policy landscape that shapes and limits how preemployment credit checks can be used by employers. The brief summarizes what is currently known about how preemployment credit checks relate to worker outcomes such as job finding and employment. It concludes with a discussion of implications for programs and practitioners working to improve economic security for workers, as well as directions for future research.

Why this matters

Preemployment credit checks are widespread among employers, and people with low incomes are most likely to have no or imperfect credit records. As a result, this practice has the potential to affect economic security outcomes for workers, including workers who earn low wages. This brief provides an introduction to preemployment credit checks for practitioners working to support individuals with low incomes who may be affected by this practice.

To motivate why preemployment credit checks may be of interest and significance to practitioners serving workers with low wages, the brief summarizes what is currently known about how preemployment credit checks relate to worker outcomes such as job finding and employment, with a focus on what is known for workers with low wages. The brief identifies several important implications for employment and training (E&T) practitioners and financial capability practitioners suggested by this research. It also identifies directions for future research to better inform practice in the E&T and financial capability fields.

What we found

• About half of US employers conduct credit checks as part of their preemployment background check, commonly for jobs with financial responsibilities or access to highly confidential data.
• As a policy response to protect workers, 11 states have restricted employers’ use of preemployment credit checks, including restrictions limiting the use of credit reports in hiring to specific jobs and industries or situations where credit relates closely to the job.
• Evidence from recent research has mostly found preemployment credit checks are negatively related to labor market outcomes for workers with imperfect credit histories.
• Research suggests that workers with low wages are among those harmed by preemployment credit checks, in part because workers with low incomes are the most likely to have imperfect credit records. However, there is little direct evidence on the effects of credit checks for low-wage workers specifically.

Programs and practitioners working with families with low and moderate incomes could consider integrating financial capability programs and employment services to better support clients. For example, practitioners could provide financial counseling to assess credit report health and offer credit building to improve credit health prior to job search assistance.

In addition, future research could:

• Explore the development, implementation, and targeting of financial capability services to identify the contexts in which they perform best and the types of workers for whom they work best.
• Build richer and more detailed evidence on how the relative effects of preemployment credit checks vary across groups of affected workers, with a focus on workers earning low wages, but also by race, geography, industries and occupations, and skill and education levels.
• Explore which specific elements of credit (e.g., bankruptcy, any debt in collections, or specific types of debt in collections such as medical, auto, or student loan, and whether recent or many years ago) are affecting which groups of workers when facing preemployment credit checks.

How we did it

This brief summarizes what is known about how common preemployment credit checks are based on surveys conducted by employer and trade associations (the only available estimates). It gives a brief overview of the policy landscape that shapes and limits how preemployment credit checks can be used by employers, based on a review of relevant federal and state laws.

This brief summarizes research on how preemployment credit checks relate to worker outcomes such as job finding and employment based on existing literature. The research summary is not based on an exhaustive or systematic literature review. Instead, it highlights recent (last five years), rigorous, empirical research, primarily from the field of economics.