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

When hiring an employee, it's important to know their experience and skill set and check their background to ensure they are a good fit for your company. Often, businesses run the credit history of potential clients to minimize payment defaults, and they may be tempted to do the same for potential employees. However, checking a job candidate's credit history can be slippery. After all, a poor credit history does not necessarily mean that they are financially irresponsible.

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

Are there State Laws About Credit History Checks?

Many states look down upon the use of an applicant’s credit history as a basis for potential employment, especially after an economic downturn that affects many people’s credit scores at no fault of their own. In fact, 10 states, including California, Oregon, Connecticut, Illinois, and Washington, have passed laws prohibiting employers from using credit reports to aid them in hiring. Other states are also considering similar laws.

When Can Employers Check Credit?

Checking potential employees' credit history to judge how responsible they might be isn’t necessary. As previously stated, a poor credit history doesn’t always provide the full picture. However, if your company hires someone who will handle credit or money as part of their job, you’ll want to ensure their credit history is good. Even if a poor credit history doesn’t indicate his or her responsibility, you won’t want to take the chance – especially when someone with a good credit history has also applied for the position.

How to Do a Credit History Screening?

If you plan to hire based on a candidate's credit history, you must ensure that your hiring process complies with the Fair Credit Reporting Act. This requires you to do the following:

• Obtain written consent: You must inform the applicant that you will check their credit history and need written authorization to do so. This authorization 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 also need to send a copy of their credit report and a notice that lets them know of their consumer 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 their credit report, an adverse action notice must be sent. This notice must include information on the applicant's rights, including the right to dispute the credit report’s accuracy and 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. If they cannot handle their own finances responsibly, 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. 

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