As we move more into the New Year, the job market gives some signs that it may finally be starting to pick up the pace.
According to Career Builder’s annual job forecast, 23 percent of the employers who participated in the survey plan to hire full-time, permanent employees in 2012. The study was conducted by Harris Interactive, and included more than 3,000 hiring managers and human resource professionals across industries and company sizes. With nearly 1 in 4 hiring managers planning to hire, this requires screening of the huge pool of potential job applicants to fill these positions.
Unfortunately, many of these job candidates have faced financial hardships during the Great Recession and have some dings on their credit reports. Since SHRM recently reported that 60 percent of employers said they checked credit histories for some or all job applicants, that can mean a rejection for a potential applicant who has experienced delinquencies, charge offs, foreclosure, or bankruptcy.
Let candidates have a chance to explain
Hiring managers should consider giving a candidate the opportunity to explain any negative information on a credit report, and make a case-by-case decision because of the impact of the economy. An applicant who has been out of work for an extended period of time and has fallen behind on some of their unsecured debt may still have the potential to become a hard-working employee.
However, a candidate who has just been living beyond their means and shows a pattern of poor credit management may need to be rejected, since employees who are financially stressed will be distracted and will ultimately use work time to deal with their financial issues.
Voluntary Benefits Magazine reports that up to 20 hours, per employee per month, could be lost as wasted man-hours and reduced employee productivity because of employees dealing with their financial problems during working hours. The conventional wisdom in using credit histories in hiring decisions is that a bad history of paying bills is a pretty good indicator of an employee’s reliability.
More states restricting background checks
However, several states have recently passed laws restricting the use of credit reports as part of the hiring process. California has new laws that took effect on January 1, 2012 and that is similar to existing state laws in Hawaii, Maryland, Washington, Oregon, Illinois, and Connecticut. California’s code revision now limits when private (and public-sector) employers, except for financial institutions, can lawfully use consumer credit reports in connection with hiring and personnel decisions, with just a few exceptions.
If you are a hiring manager who is not located in these restrictive states, pay close attention to the story that a credit report can tell you, so the new hire you do choose will become a productive member of your team.
This was originally published on the Financial Finesse blog for Workplace Financial Planning and Education.