4 Reasons Why Credit Reports Matter for Hiring

Employers have a duty to run a number of various background checks on potential employees. Credit reports are one of them. Like any of the information on a background check, a credit report check provides additional information to employers on prospective employees.

Credit reports can give employers insight into a person’s financial well-being and money-management abilities — information particularly important in financial industry roles. Occasionally, credit reports can function as an additional form of identity verification as well. They provide a way to double-check an employee’s name, address, and other identifying data. Read on to see exactly what is shown to an employer in a credit report, and four top reasons why credit reports matter for hiring.

The Details on Employer Assessment of Credit History

Wondering what goes into a credit screening and what you can see about candidates on a credit report check? Here, we cover everything included in a typical report and how to use that data to inform your hiring decisions.

Open Lines of Credit

Credit reports reveal any open lines of credit, including mortgages, foreclosures, and often rental history and rental payment history. 

In addition to housing data, a credit check for job applicants may detail personal lines of credit like credit cards, including outstanding balances or percentage of the line of credit in use. Bankruptcies can be included as well, as are auto and student loans. Lastly, the report will show delinquent credit accounts, like late or missed payments, liens, bankruptcies, and judgments. 

How Employers Use a Credit Report for Job Hiring 

Employers typically use a credit report online to review an applicant’s credit history over the previous four to seven years. Where lenders, motivated to open new accounts, typically focus on current credit health when making a judgment. Despite current credit prosperity, employers may bring up and ask questions on a discrepancy from a few years ago. Don’t let every credit report flaw be a red flag though. An overwhelming majority of employers say they allow candidates to explain their financial situation and any credit report issues before making a hiring decision.

The Fair Credit Reporting Act 

Employers can only retrieve credit report information while complying with the rules set forth in Fair Credit Reporting Act

These stipulations mandate that employers:

  • cannot check credit history without an applicant’s knowledge
  • must have written consent before pulling an applicant’s credit history

Some states have more specific restrictions with respect to employers’ use of credit report data for employment decisions, and laws may vary based on your location. While employers do see a fair amount of credit information, they still only receive a limited version of any complete credit report. The Equal Employment Opportunity Act enforces this right to applicant privacy.

Close up picture of woman calculating employment and credit-related data on a potential employee

Why Do Employers Use Credit Reports

The credit report protects both the employer and the applicant. While some applicants resent this intrusion into their finances, too many businesses lose too much money on bad hires. Employers must use a credit report for job hiring so they can stay in business. Here we cover the importance of running a credit check.

To Prevent Theft

In 2018, a survey by the Association of Certified Fraud Examiners (ACFE) revealed that 75% of employees admit to stealing from their employers. This theft typically goes on for two years before employers detect it. Overall, 95% of all businesses have experienced employee theft.

Employers sensitive to loss due to employee theft look closely at a candidate’s credit report, particularly if the role involves handling money or finances. Employers see candidates who are struggling financially as more likely to steal. 

To Reduce Legal Liability

Another reason for running credit reports is to protect themselves from any legal liability. A complete background check credit report reveals negative incidents that occurred at a previous workplace and could be repeated. If a workplace incident occurs that an employer had an obligation to know about, the liability falls on the employer for failing to do their due diligence. Employers most stand to lose in situations where an employee endangers or harasses other employees. A negligent hiring lawsuit cuts into profits, reputation, and workflow.

To Fulfill State Legal Obligations 

In some instances, an employer is not obligated to run background checks or credit reports online. There are some states that require employers to run background checks inclusive of credit reports due to the nature of the job. For instance, a job with a high salary requires extra background info in some states.

To See Employee Patterns 

One last reason employers review credit report checks is in order to catch specific patterns of money mismanagement. For employees, it’s best to have an understanding of your own credit score and report and to be able to explain any discrepancies and negative entries. Employers should have a set of questions ready about any negative entries, and know what are potential deal-breakers. While a credit report certainly doesn’t show the whole picture, it can be helpful in finding responsible candidates.

Choose DataCheck For Credit Report Checks

For over 20 years, DataCheck has been making bringing on great employees easier for employers. It’s always our goal to make you feel confident in your next hiring decision. If you need a credit report for job hiring, we have many options. Our team of background investigation experts give you the chance to personalize your background checks, even adding drug tests, screening services, and social media account searches. Get started by filling out a form on our site today to see how our top-quality, fast, and thorough employment screening solutions and a credit report online can benefit your hiring process. 

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