Performing an employment credit check can help you determine if the candidates you hire have a history of financially sound behavior. Here is what you need to know to help you decide if credit checks should be part of your candidate background screening process.

When (and Why) to Do an Employment Credit Check

A credit check is most often associated with the process of making a big purchase, such as buying a house or car. But it can also be a part of the pre-employment background check, particularly for certain job functions requiring financial decision-making and access to cash.

Though nearly all employers conduct candidate background checks, including criminal records search and identity verification, some also conduct credit checks. According to the 2020 Professional Background Screening Association (PBSA) survey of employers, 94 percent of organizations do some type of candidate background check. Of those, 14 percent conduct credit or financial checks on all job candidates, and 38 percent perform credit checks on some candidates.

Credit checks often make sense for individuals going into roles with fiduciary responsibility, for example, positions in financial services organizations. Conducting credit checks for those roles can not only protect your organization’s finances, but also customer accounts. The following positions typically require credit checks:

  • Accounting positions
  • Positions with significant decision-making authority
  • Positions required by law to have credit checks, for example, police officers
  • Positions in which employees have direct contact with money, for example, cashiers and bank tellers
When conducting a background check, it shouldn’t be a “rubber stamp” measure for certain hires in fiduciary roles. Instead, what you really want to do is understand if anything in a candidate’s credit history might potentially lead to the mishandling of funds or fraudulent activity in your organization. Some of the “red flags” employers typically look for in a credit check report include:
 
  • Excessive debt, which could place a person in a position to commit theft or fraud to pay personal debts
  • A consistent pattern of late payments, which could indicate a problem with adhering to financial agreements
  • Any other evidence of financial mismanagement

What Does an Employment Credit Check Include?

While candidates with some kinds of personal financial problems or debt won’t necessarily be ruled out of the running for employment, a credit check can help you learn if an individual has something more concerning in his or her credit history. For example, multiple tax liens or bankruptcies may suggest a candidate might be a more risky hire. Items you can expect to see on a credit check include:

  • Bankruptcies
  • Tax liens
  • Open lines of credit and available credit on mortgages, credit cards, and auto loans
  • Account histories, such as amount owed and late payments
  • Accounts in collection
  • Civil suits or judgments

Employment background checks provide a comprehensive view of a candidate’s credit history, but they don’t include some account details or information prohibited by law. For example, if a candidate filed for bankruptcy over a decade ago, you won’t see it on the credit check report. Credit checks do not include:

  • Credit scores 
  • Account numbers and other account identifying details
  • Credit information older than seven years
  • Bankruptcies older than ten years
     

Conducting an audit is the best way to assess your entire background screening  program. Don’t know where to start? We can help>>>

Laws Governing Credit Checks

As with other elements of background screening, employers conducting credit checks must adhere to regulatory guidelines for collecting and using credit history information. Non-compliance can lead to regulatory fines and lawsuits. As a result, make sure your credit checks activities comply with the Fair Credit Reporting Act (FCRA), the Equal Employment Opportunity Commission (EEOC), and applicable state law.

FCRA

Employers conducting candidate credit checks must comply with FCRA rules for disclosure and authorization before proceeding. In addition, if the findings from a background or credit check reveal potential risks associated with hiring a particular person, you must also follow FCRA guidelines for taking adverse action.

EEOC

The EEOC oversees how employers can use information from credit checks. Employers are prohibited from illegally discriminating when using financial information to make employment decisions. For example, you shouldn’t use one standard when assessing female candidates' credit check reports and a different standard for male candidates.

Applicable state law

Since credit check laws vary by state, you will need to understand applicable laws in each state where you hire. According to the National Conference of State Legislatures, there are 11 states either prohibiting employment credit checks or placing restrictions on which employers may conduct credit checks, and for which types of positions. Those states include:

  • California
  • Colorado
  • Connecticut
  • Delaware
  • Hawaii
  • Illinois
  • Maryland
  • Nevada
  • Oregon
  • Vermont 
  • Washington


Additionally, the following locations also restrict the use of credit checks for employment: Washington D.C., New York City, Chicago, and Philadelphia.

Best Practices for Performing Credit Checks

There are several key actions you can take to derive maximum value from credit checks. Take the following steps to make credit checks an impactful part of your pre-employment screening process:

1. Create a comprehensive policy.

Your background screening policy should clearly state which job categories are subject to credit checks and which credit check findings could impact a candidate’s employment eligibility. Once you have crafted a policy, you will also need to make sure your existing background screening practices align to it.

2. Review credit check results carefully.

Credit check results should be considered within the context of other background screening results, such as criminal and employment history. Certain credit check results may not necessarily make a candidate ineligible for hire, particularly if there are a few isolated issues or they occurred many years in the past. Also, credit reports can occasionally contain errors. The Federal Trade Commissions (FTC) did a study and found one in five consumers had an error on at least one of their three credit reports.

3. Work with a reputable background screening provider. 

Your background screening partner can help you incorporate credit checks into your overall screening program successfully. Your screening partner can also help you stay in compliance with laws affecting how and when your organization can conduct employment credit checks. These laws change frequently. As recently as January 2020, the U.S. House of Representatives passed a bill restricting the use of credit information for most employment decisions. Though the bill has not become law, its status could change in the future. Your background screening provider can keep you updated so you can make changes to your screening program where necessary.

Get the Most out of Employment Credit Checks

The employment credit check is one of the many available tools to help you manage hiring risk and protect your employees and customers. By conducting credit checks, you’re demonstrating a strong commitment to hiring individuals who can be trusted with your organization’s finances. When you develop a clear policy and work with a compliance-minded background screening provider, you can make credit checks an integral part of your screening process and gain access to the information you need to make well-informed hiring decisions. 

The ongoing health of your background screening program is not dependent upon any one component, be it credit checks, criminal record searches, or employment verifications. Rather, by regularly reviewing your entire program for efficiency, compliance, and potential risks, you can make improvements and keep your background screening activities in line with your hiring goals. For more helpful tips and ideas, read our Guide to Auditing and Improving Your Background Screening Program.

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