Frequently asked questions
Learn more about credit
background checks
A credit background check helps employers understand a job candidate’s credit history, including how they’ve handled credit, paid bills, and managed debt in the past. A credit background check contains information modified from consumer credit reports to help employers make informed hiring decisions. This type of check is often conducted by employers to understand the credit history of prospective employees, especially when hiring for roles with financial or fiduciary responsibility.
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What is a credit check?
A credit check is a record that indicates how a person manages their money, credit, and other financial obligations. Debt-to-credit ratio, bankruptcies, payment history, open lines of credit, and credit inquiries may all appear on a credit check. Different types of credit checks can be used for different purposes, including evaluating credit risk or determining a candidate’s suitability for a new position.
Why do employers check credit?
Employers also use a credit background check to equip themselves with information to make more informed hiring decisions and to determine a candidate’s qualifications for finance-related roles. If the position sought by a candidate requires sound financial decision-making skills or a high level of trust with the organization’s financial resources, employers may use a credit history check to determine whether the candidate is capable of managing protected resources and safeguarding the organization’s reputation. In some industries or roles, pre-employment credit checks may be required by law.
What does a credit check show?
A credit check may show public information, such as tax liens, collections, and bankruptcies. It may also reveal outstanding balances, payment history, and open lines of credit. Employment credit checks may contain:
- Names and addresses of current and previous employers
- Open lines of credit, including mortgages and other loans such as auto or student loans
- Credit inquiries
- Payment history, including late and missed payments
- Unpaid balances turned over to collections
- Public record information such as bankruptcies
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What do employers look for in a credit check?
When employers run credit history checks as part of a comprehensive background check, they’re looking to understand candidates’ personal history with finances to help ensure they’re hiring qualified people with the utmost integrity and fiscal responsibility. It’s important to note that employers must have a permissible purpose to use credit checks for employment, which includes hiring for positions where the employee will be handling or managing money. An employment credit check is different from a consumer credit check (for example, the type used for credit card applications or car loans). An employment credit check is a modified credit report and does not include credit scores.
How to do a credit check on an employee
To do a credit check on an employee, employers may request the check through a credit reporting agency or partner with a consumer reporting agency, like Checkr. When conducting a credit check, employers must remain compliant with the federal Fair Credit Reporting Act (FCRA). The FCRA provides requirements for permitted purpose, disclosure, and consent for conducting background checks, including credit checks. Typically, the use of credit history is prohibited unless the employer or employee falls into special categories, such as an employee who would:
- Handle large amounts of money
- Work in a managerial capacity
- Have access to trade secrets
- Work in a field (such as financial services) in which regulations require credit reports
To remain compliant with laws and regulations, employers must observe the following requirements:
- Follow certification or credentialing regulations. If you conduct the credit check yourself, you must certify to the credit reporting agency (Equifax, Experian, or TransUnion) that you have informed the candidate, obtained permission, and followed FCRA regulations. If you request the credit check through a consumer reporting agency (CRA), like Checkr, your organization first must be credentialed. This includes providing a statement of your business purpose for ordering the credit check as well as a one-time on-site inspection of your offices.
- Provide appropriate disclosure and authorization. Employers must inform the candidate they will be conducting a credit check and obtain written permission from the candidate to do so, as required by the FCRA. Some candidates may hesitate for fear of damaging their credit score with too many inquiries. However, employer credit checks are considered soft inquiries and will not affect the candidate’s credit score.
Adhere to federal and local laws. All employers must comply with the FCRA and any applicable state or local ban-the-box laws or fair hiring regulations when running credit background checks. Additionally, some states and cities (like New York and Chicago), have passed laws restricting how credit report information may be used in making hiring decisions.
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Checkr helps employers build trusted teams with a simplified background check process for you and your candidates, and creates transparent interactions with our easy-to-use, mobile-optimized platform and built-in FAQs.
Checkr’s advanced technology not only delivers fast and accurate employment credit check results, and also delivers peace of mind with its built-in features to help you maintain compliance. With screening options to suit the needs of your organization, we help you save time so you can make confident hiring decisions quickly. Get started today.
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Disclaimer
The resources provided here are for educational purposes only and do not constitute legal advice. We advise you to consult your own counsel if you have legal questions related to your specific practices and compliance with applicable laws.
