Hiring managers consider a wide range of information when evaluating an applicant for employment. This includes the applicant’s qualifications, education, and employment history. Hiring managers must also ensure that applicants don’t pose any risk to the company’s staff, customers, or business.

Employment screenings are a practical way for hiring managers to gather relevant information about an applicant. Employment screenings typically include a criminal records search. However, should employment screening include credit checks?

Credit Checks and Background Screening

There are several reasons for including a pre-employment credit check as part of an applicant background screening.

A comprehensive credit report includes information on an applicant’s previous employment, credit history, and related legal activity. These reports are useful in identifying issues or patterns that could impact a candidate’s ability to carry out a position’s responsibilities.

For example, a negative credit report could be an indication of inadequate management skills, poor decision making, or lack of judgment.

Employers also use credit checks to protect the company from litigation. This is because the employer may be held liable if an employee engages in improper or illegal conduct.

For example, in cases of employee fraud or embezzlement an attorney suing the employer might check to see if the hiring manager conducted a comprehensive pre-employment background screening that included a credit check.

Additionally, an applicant with a large debt balance or bankruptcy filing may be experiencing financial duress. This could indicate that the applicant poses a higher risk for financially exploiting the employer.

Does a Poor Credit Report Automatically Disqualify a Candidate for Employment?

Just because a hiring manager encounters an applicant with a poor credit history doesn’t mean they will automatically disqualify them from further consideration for employment. The candidate may have strengths that outweigh concerns about their credit history. The candidate may be able to provide a reasonable explanation for their credit problems during an interview.

Legislation prevents the inclusion of credit history on an employment background check when it’s not job-related, so make sure that any applicant credit history run is necessary to the position. It makes sense to include a credit check for finance and accounting positions, and may be appropriate for a candidate who will handle customer credit card transactions. Obtaining an applicant’s credit report would also be reasonable for a charitable organization that accepts donations.

In each of these examples, pulling an applicant’s credit report is related to their job responsibilities. Therefore, the risk of facing litigation for violating the Fair Credit Reporting Act is reduced.

If you are including a credit check with your background screening, it must conform to the rules described in the Fair Credit Reporting Act (FCRA).

FCRA regulations require that employers obtain the applicant’s consent before retrieving a credit report. Employers must provide the applicant with a pre-adverse action notice if they intend to reject the candidate’s employment on the basis of the reported results, which gives the applicant time to dispute any false claims or fix inaccurate details. Employers must also give the candidate a copy of the background report. A full description of a candidate’s rights under the FCRA can be found here.

An experienced background screening provider can help hiring managers conduct candidate credit checks that are compliant with the FCRA.

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