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When should an employer run a credit history on job applicant?

Posted by Ryan Howard on Tue, May 13, 2014


There are a lot of concerns when hiring an employee. Not only do you want to pay attention to their experience and skill set, you also want to check their background to make sure they are a good fit for your company. Many companies have taken to checking the credit history of a potential client. This helps them give an overall sense of how responsible the individual is. However, checking a potential employee’s credit history can be a slippery slope. After all, a poor credit history does not necessarily mean that they are financially irresponsible.

State laws concerning credit history checks
Many states look down upon the use of an applicant’s credit history as a basis for their potential employment, especially after the economic downturn that ended up affecting many people’s credit scores without real fault of their own. In fact, many states, such as California, Connecticut, Illinois and Washington, to name a few, have actually passed laws prohibiting employers from using credit reports to aid them in the hiring process. Many other states are also considering similar laws.

When you should check someone’s credit history
Checking every potential employee’s credit history as a way to judge how responsible they might be isn’t necessary. Like previously stated, a poor credit history doesn’t always provide the full picture. However, if your company is hiring someone that is going to handle credit or money as part of their job, you’ll want to make sure their credit history is good. Even if a poor credit history isn’t indicative of his or her responsibility, you won’t want to take the chance – especially when someone with a good credit history has applied for the position as well.

The process of checking someone’s credit history
If you plan on making a decision about someone’s employment based off of their credit history, then you will have to make sure that you comply with the Fair Credit Reporting Act. This requires you to do the following:

  • Obtain written consent – You have to let the applicant know that you want to check their credit history and you will need written authorization to do so. It must be separate from the employment application.
  • A pre-adverse action disclosure must be sent – If you have decided not to hire the applicant based on his or her credit history, you’ll have to send them a notice that states this. You'll need to send a copy of their credit report as well as a notice that lets them know of their rights, which includes the ability to challenge any information on the credit report the applicant believes to be incorrect.
  • An adverse action notice must be sent – Once the final decision has been made not to hire the applicant based on his or her credit report, an adverse action notice must be sent. This notice must include information on the rights of the applicant that include the right to dispute the credit report’s accuracy as well as the right to obtain another copy.

When filling a financial position within your company, it makes sense to check out the credit history of your applicants. They are, after all, going to be handling the finances of your company – and if they were unable to responsibly handle their own finances in the past then you have the right to question whether they will be able to do so for your company. However, it is important that you follow the legal process set forth by the Fair Credit Reporting Act when doing so. 

Wondering when you should run a credit history? Download our free job related screens ebook to help make your screening decisions easier. 



Topics: Types of Background Checks, Employment Background Screening, FCRA Compliance