An employment credit report offers a complete history of an individual or entity’s credit obligations. A credit report is useful for applicants who will fill positions which require significant access to company and/or consumer private financial information. It should always be used in conjunction with a high level criminal background check. It has been reported that approximately 60% of employers use credit reports as part of their hiring process.
Credit reports can include the following information:
- Identifying information such as the social security number and date of birth
- Current and previous address history
- Former names used
- Derogatory credit information
- Past due accounts
- Accounts in collection
- Bankruptcies (note: many states have laws which do not allow the consideration of bankruptcy filings in employment decisions. Contact Crimcheck for further guidance on this topic.)
- Judgments and liens
- Status of accounts with creditors
*An employment credit report will not show the individual’s credit score*
Please note, a credit report should only be requested when it is directly related to the job that the candidate will be performing. In order for a company to request a credit report on an applicant, they must first complete an application which will be reviewed by the consumer reporting agency to ensure they meet the applicable requirements. One of the most important requirements is that the company has a permissible purpose to utilize credit reports for employment purposes. A permissible purpose would be to check the credit of an applicant for a financial position within the company, or someone who would have access to company/client/consumer financial information.
What Types of Businesses Use Employment Credit Reports?
Credit reports for employment screening are used for a variety of reasons. One reason would be that an employer needs to utilize a credit report to verify that an applicant is responsible and reliable or to confirm their identity. Or perhaps an employer is concerned about hiring people who do not manage their personal affairs wisely. Crimcheck offers credit reports for a variety of industries.
Industries that Frequently Utilize Employment Credit Reports:
- Business Services
- Legal Services
- Medical and Health Services
Reasons to Consider Credit Checks for Employment Screening
An applicant with significant debt that is in serious arrears may not be the best candidate to place in a position where they will have full access to corporate funds or consumer private data. However, it’s difficult to make this a deciding factor when evaluating a candidate. Importantly, employment credit reports should not be an initial screen for a candidate – most often it is utilized as a final screen. If the candidate meets all other conditions of employment, and is a viable choice for the position, the best practice may be to have a frank discussion with the applicant regarding their credit history. Especially in today’s economy, there could be extenuating factors that led to the person’s credit problems which could be taken into consideration.
Employers may be liable if they place a candidate in a position giving them access to consumer financial data without performing adequate due diligence. If an employee is hired without a complete background check, and is later involved in the theft of consumer data, the employer could be faced with a negligent hiring lawsuit.
Certain industries (such as financial) use employment credit reports to comply with an industry standard or requirement of an external agency.
Permissible Business Purposes and Employment Credit Check Laws
By law, in order to use this service you must be a licensed business using the credit report information for a permissible business purpose. Those specific employment purposes and proper procedure are:
- The individual must give written consent before the employer can obtain the credit report
- The credit report cannot be used in violation of any federal laws or EEOC laws or regulations
- The consumer reporting agency must include a summary of the consumer’s rights with the credit report, including detailed instructions how to dispute any information found on the credit report.
- The employer intends to use the information for evaluation of a potential investor or servicer or current insurer
- There is a legitimate business need for the credit report.
The Pros and Cons of Using Employment Credit Reports
According to a study produced by the Society for Human Resource Management, 87% of employers who run credit reports on candidates allow the candidates to explain the circumstances regarding any information reported before making the hiring decision. Credit reports are usually ranked the lowest priority in hiring definition making.
- Credit reports can contain inaccurate information, especially in cases of identity theft.
- There is no proof that credit history is a good predictor of employee performance.
- Credit reports can disproportionately impact certain minority applicants based on a report from the Equal Employment Opportunity Commission.
If you believe your company needs to order credit reports on your potential or current employees, please use the following steps initiate the credit compliance audit:
1. Contact Crimcheck to get started – Crimcheck can help obtain all the information necessary for credit compliance.
2. Familiarize yourself with the Fair Credit Reporting Act as it outlines all the necessary components one must take when ordering credit reports.
3. A company must complete credit compliance applications and include the following information: company information including company officer details, company bank references and trade references.
4. A company must indicate the permissible purpose for use of credit reports and how the data obtained will be used. The corporation must also indicate how it will ensure the proper security management of these documents.
5. Crimcheck requires an onsite property inspection. This must be conducted prior to your company obtaining any credit reports. Crimcheck will coordinate the on-site inspection.
Important Considerations Before Ordering Employment Credit Reports:
- Is there a comprehensive policy stating which positions within your company will require a credit report before hire?
- Is the policy being used consistently for all candidates applying for those outlined positions?
- Is the information received from the credit report directly related to the job?
- Is the credit report coming directly from a reliable source such as a consumer reporting agency that is authorized to provide employment credit reports?
- Have your hiring managers been trained in how to interpret credit reports?
- Are candidates on whom you run credit reports given the opportunity to review and dispute any information found on the report?
- Is the credit report a determining hiring factor between two equally qualified candidates?
- When during the hiring process is the credit report being used?
Crimcheck is a consumer reporting agency which is authorized to provide employment credit reports to approved corporations. Contact our sales staff for more information.
Terms to Know
Accounts Receivable: Money that is owed by a customer or consumer. If this does not get paid, the account goes into collections.
Authorization Form: The document the candidate must sign in order to give permission to have a credit report completed on them.
Arbitration: The process by which parties settle a dispute in front of an unbiased person
Bankruptcy: A statutory procedure by which a debtor obtains financial relief and undergoes reorganization or liquidation of the debtor’s assets for the benefit of creditors.
Collections: The process of recovering money owed by a customer or consumer on a past due account
Consumer Reporting Agency: Any person or entity which gathers and evaluates consumer information for the purpose of supplying the consumer report to third parties.
Credit Compliance: The process a company must go through in order to be qualified to run credit reports for employment purposes.
Credit Report: A detailed report of an individual’s credit history which has been prepared by a credit bureau. This report can include the following information; personal information, a summary of credit history including accounts in good standing or that are past due, detailed account information, details of accounts which have been turned over to a credit agency (such as liens, wages, etc.) and details how an individual can dispute any of the reported information.
End User: The final person or company who actually uses the credit report. Please note, if a company requests credit reports, they must be the end user and cannot share the information with anyone else.
FCRA: The abbreviation for the Fair Credit Reporting Act which is a federal law that regulates consumer information in how it can be collected and distributed. When a company utilizes a Consumer Reporting Agency for employment screening, all reports must be compliant under the FCRA.
Judgment: The court order of a lawsuit to pay a certain amount of money
Lien: A legal right or interest that a creditor has in another’s property, lasting usually until a debt or duty that it secures is satisfied.
Permissible Purpose: An allowable reason
Summary of Rights: A synopsis of a consumer’s rights under the Fair Credit Reporting Act.