What is an Employment Credit Check?

Article written by Amy Polowichak

Almost everyone has had their credit report pulled at least once.  Sometimes it may seem like everyone wants to see your credit report! Not only do lenders pull your credit when you apply for any type of loan or for a credit card, your credit might be checked when you apply for a limit increase on your credit card, apply to rent an apartment, or try to get a new insurance policy.

Credit checks have become a ubiquitous part of life, so it’s not surprising that many employers conduct credit checks on prospective employees.

Why do employers conduct credit checks?

51% of US companies surveyed by the Professional Background and Screening Association in 2021 reported that they conduct credit or financial checks on potential employees.

For some industries, such as banking or financial services, or for positions where employees will have access to the company and customers’ money, it is easy to see why so many employers would want to see a potential employee’s credit report.  If a candidate has been fiscally responsible in their personal life, isn’t that likely to carry over to their professional like?  Likewise, if they have a history of financial mismanagement, how well will they be able to manage the company’s money?

Employers may also look to a candidate’s credit report for other reasons.  Name and address history on the report can help confirm the candidate’s identity.  Some employers will look to credit history to give them an idea of the candidate’s ability to be responsible and organized.  In some cases, employment history that the candidate did not disclose during the interview process may be present on their credit report.

What Information Is Included?

Potential employers do not see a candidate’s “full” credit report.  Most notably, the credit score is not included on the report.  Other information employers won’t see is account numbers, any information about medical bills, and the candidate’s current or past income.  The report will also not include any information that could be used to discriminate against the candidate.  This includes age, marital status, race, ethnicity, political affiliation, and religion.

Another difference between an employment credit check and one pulled by a lender is that it is a “soft inquiry”.  A credit check conducted for employment purposes will not affect the consumer’s credit score and will only appear on the report for the consumer.  Other potential employers or lenders will not see the inquiry.

What can the employer see?

• Identifying information: employers will see the candidate’s full name and address, along with former names and addresses they have obtained credit under.
• Credit accounts: these include credit cards and loans (student, home, auto, and personal) along with available credit and outstanding balances.
• Payment history
• Bankruptcies and liens
• Collections accounts
• Self-reported employment history

Regulations

Like with other consumer reports, employers must comply with the Fair Credit Reporting Act (FCRA) when conducting a credit check.  When conducting a credit check for employment purposes, the employer must:

• Inform the candidate in writing. The notice cannot be part of a job application.
• Obtain written authorization from the candidate.
• Before undertaking any negative employment decision, provide a notice of the decision to the candidate along with a copy of the report and a copy of A Summary of Your Rights Under the Fair Credit Reporting Act.
• After waiting a reasonable amount of time, to allow the candidate to explain any negative information in the report or correct any inaccuracies, notify the candidate of the adverse action taken. This notice must include the name and contact details of the consumer reporting agency that supplied the report and a statement that the consumer reporting agency did not make the decision and cannot provide an explanation for it.
• Notify the candidate of their right to a free copy of the report within 60 days and their right to dispute the report’s accuracy or completeness.

Some states have passed laws that place additional restrictions on using credit checks for employment purposes.  These states are California, Colorado, Connecticut, District of Columbia, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington.  Chicago, IL, Cook County, Il, New York, NY, and Philadelphia, PA also place additional restrictions on employment credit checks.

A credit check can be an important and useful tool in determining a job applicant’s suitability for employment, and employers can make the process of obtaining one easier on themselves by partnering with a reputable background screening company that can guide them through the process.  If you have questions about conducting a credit check on potential employees, Justifacts can help!

If you are looking for more information on our services, feel free to request information or give us a call at 800-356-6885 to speak to our sales team.

It is important to note that Justifacts is providing this information as a service to our clients. None of the information contained herein should be construed as legal advice, nor is Justifacts engaged to provide legal advice. We go to great lengths to make sure our information is accurate and useful. We recommend you consult your attorney or legal department if you want assurance that our information, and your interpretation of it, is appropriate to your particular situation.