Misconceptions of Employment Credit Checks: Not a Credit Score

Posted Thursday, July 26th, 2018 by Debbie Lamb, Sterling Talent Solutions

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Misconceptions of Employment Credit Checks: Not a Credit Score

Credit reports are used in all aspects of our lives from securing credit cards, getting a loan, renting a home and even getting a certain type of job. Every day, I see advertising for “free credit checks” either on TV or online. While most people think of an excellent credit score getting you a car or house loan, most people don’t think about the detail that it shows and how it can be a determining factor for hiring in many industries.

As we have mentioned in previous blog posts in our series, there are many types of employment background screening reports and it is important to understand what information is needed to make the screening process go as smoothly and quickly as possible. The first blog post in our candidate employment series, What You Need for a Criminal Record Check, shared what information needs to be provided to either a third-party background screening provider or an internal HR team to run a criminal record check. The second blog shared information about what could be required for an education verification check. The third blog post in the series shared what a candidate needed to provide for employment verification. In part four of the series, we will shine the spotlight on employment credit checks.

What are Credit Checks?

An employment credit report is designed to give business’s pertinent information that is needed to assist an organization in making a hiring decision. The report will show a comprehensive credit history and provides public record information, plus other items that are not typically included in job applications. Employment credit checks can provide employers with an insight into a candidate’s sense of financial responsibility and stability. Credit checks are a useful tool for limiting the potential liability of fraud, theft and various white-collar crimes. Employment credit checks generally include the following identifying information:

  • Full Name
  • Address
  • Previous Names and Addresses
  • Debt
  • Bankruptcy
  • Payment History

A common misconception is that an employment credit check reports a candidate’s credit score to an employer. This is not true. The credit reports that a Consumer Reporting Agency provides gives a completely unbiased account of a potential job candidate’s background while staying compliant with the Fair Credit Reporting Act (FCRA). The employment credit check generally provides a current candidate address and previous addresses, can return employment information, suppresses personal identity information (Social Security Number, birth date and account numbers) and automatically generates and sends a public record notification letter as mandated by the FCRA requirements.

Laws Limiting the Use of Credit Reports for Employment

Most states allow employers to run credit reports for hiring purposes. However, some states and cities including Hawaii, Oregon, Connecticut, California, Colorado, New York City, Washington, Illinois, Maryland, Vermont, Nevada, Washington D.C., have restricted the running or use of credit reports based on the position and industry. There is also proposed legislation in 17 other states as a well as a federal amendment (HR 3149) which would limit or prohibit the use of credit reports for employment purposes. Employers must be knowledgeable in these laws when running credit checks on their candidates.

What Do I Need to Supply for Credit Checks?

Credit checks are not run on all candidates. They are mandated for companies where candidates will have managerial, accounting, financial record or check-writing responsibilities. When running a credit check, the company must have a permissible purpose. The candidate MUST give permission to run the report via a disclosure authorization form. The information that you provided for a criminal record check such as full name, social security number, birthday, any known aliases, current and past addresses and driver’s license number can be used to run the employee credit check. The employer is required to offer a copy of the credit report and a written summary of the consumer’s rights along with the report. Candidates also can dispute the findings of the credit report if they find an error.

It is important to be informed about the process and what information you need to provide for the background check. Remember to read the consent form carefully before you sign it. Providing the correct information at the time of consent will help to speed up the background check process.

Background Check Regulations

As a reminder, third-party background screening companies are regulated by federal, state and local laws. At the federal level, background checks are regulated by the Fair Credit Reporting Act (FCRA) and the Equal Employment Opportunity Commission (EEOC) guidelines. One requirement of the FCRA is that a company must notify the candidate that they will be performing a background check. The notice will explain that the results of the background check will be used for hiring, promotion or retention. After explaining the intent of performing a background check, employers must receive consent (either on paper or online) from a job candidate to run a background check and that the results will be used in making hiring decisions.

There are many aspects to a background screen from criminal record checks to employment verifications to credit checks. Each company will require different checks for the positions that they need to fill. Understanding what information you need to be prepared for the background check will help the turnaround time and put you a step ahead of other candidates. For other questions about the process, check out the FAQ at the Sterling Talent Solutions’ website.

This publication is for informational purposes only and nothing contained in it should be construed as legal advice. We expressly disclaim any warranty or responsibility for damages arising out this information. We encourage you to consult with legal counsel regarding your specific needs. We do not undertake any duty to update previously posted materials.