When to Credit Check a New Hire

As a person in charge of hiring for your company, you’re likely aware of Equal Employment Opportunity Council guidelines on background checks. When it comes to choosing which searches to conduct in a background check you must ask yourself is “what is the justification of this report?” If you’re considering running a credit check, there’s a few things you should know first.

Employment Credit Check: What it is (and what it is not)

Here’s what’s included in an employment credit check:

  • Name and aliases (if available)
  • Address, and possibly previous addresses
  • Date of Birth
  • Verification of the Social Security number
  • Civil judgements and bankruptcy filings
  • Collection items
  • Credit card debt
  • Mortgage and car payments
  • Student and other loans
  • Payment history of those debts and loans—including late payments

What is NOT included in an employment credit check:

  • Date of birth
  • Employment history
  • Income verification
  • Fico Score or any other scoring model

Employment credit checks provide an unbiased account of a candidate’s financial obligations and how they manage them. The reports are compliant with the Fair Credit Reporting Act (FCRA).

Does my state even allow me to conduct an employment credit check?

If collecting the above information seems relevant to the position you’re hiring for, that doesn’t mean you have the green light to move forward. Employment credit checks have laws limiting their use in certain states. Credit checks are limited in California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, Washington, and other states. Please note: this is not legal advice. To the best of our knowledge, we believe this information to be truthful. However, we encourage you to check with your own legal counsel about your state’s laws.

Other laws restricting credit checks

  • You must receive written authorization from the candidate to run this check
  • You must disclose if the report was a factor in not hiring the candidate
  • You must give the candidate the contact information of the agency used to generate the credit report
  • You must give the candidate a copy of the report if they request
  • You must be prepared for the possibility that the candidate will dispute the information in the report

What types of positions should warrant an employment credit check?

Legalese aside, how do you know if the position you’re hiring for should warrant the use of a credit check? If you can check off any one of the items below, a credit check may be right for your candidate search process:

  • The position you’re hiring for involves confidential financial information.
  • When the employer is a bank, credit union or financial institution.
  • When the position in question is a law enforcement officer, emergency medical personnel, or a firefighter.
  • When the position of employment requires a financial responsibility to the employer or a customer. Responsibilities might include authority to issue payments, collect debts, transfer money, or oversee contracts.
  • When the employer can demonstrate that the information is a valid and reliable predictor of employee performance in the specific position of employment.
  • When the position of employment involves access to an employer’s payroll.

How to Explain this report to candidates

If a potential candidate is struggling to understand why such a report is needed, we encourage you to be upfront about the job responsibilities that warrant it. Also, let them know that this report only puts a “soft inquiry” into their credit file: it won’t take points off of their score. Their actual credit score will not be made available to the employer.

That said, these types of reports are rarely used and typically are only used for jobs in finance or executive level with profit and loss responsibility attached. It’s also important to remind them that a few bad marks within their report does not mean an automatic disqualification for the position.

Ready to Run an Employment Credit Check for Your Next Hire?

If you’re preparing to hire a new employee and need to be sure that they can be trusted in a financial position, you should consider working with a third-party to conduct an employment credit check. Reach out to VerifyProtect today to schedule a consultation by calling (610) 355-2331. With over 30 years of expertise in employee screening services, you can feel confident that we’re the right partner for your hiring process.

Kristina Taylor
In 1989, Kristina began her career as a customer service representative at the newly formed American Tenant Screen, Inc. Ten years later, she pioneered tenant background screening on the Internet. As a long-standing member of the National Multifamily Resident Information Council (formerly the National Association of Screening Agencies) Kristina gains insight into the trends of the tenant screening industry to better understand the current and future needs of their clients.

Related Posts

Popular Resources

What is the “Ban the Box” Movement?

Read More

FTC and EEOC Background Check Guide for Employers

Read More

Federal Fair Credit Reporting Act

Read More

Driver’s Privacy Protection Act of 1993

Read More

Sign Up to Receive News & Updates in Your Inbox