What is Included in a Pre-Employment Credit Report?

It is standard for employers to conduct an interview, background report, and drug test as part of the hiring process. Now, credit checks are also being used by some employers to get more detailed information on their potential hire. A pre-employment credit check can alert employers to signs of financial problems like theft or fraud that a candidate might have. 


What is Included in a Pre-Employment Credit Report?

An applicant’s credit history can show potential issues that employers may want to avoid. A pre-employment credit report shows information such as name, address, and Social Security number. It also shows credit card debt, mortgage and car payments, and student and other types of loans, including late payments. 

Employers can run a pre-employment credit report to get a modified version of the employee’s financial history, but it does not include their credit score. Employers do not have access to information that can violate equal opportunity employment regulations such as the year the candidate was born. Instead, it shows the potential employee’s payment record, the amount of debt, and available credit. 

Pre-employment credit reports are more often used for jobs that involve security clearance, access to money, or confidential information. The Society for Human Resource Management (SHRM) found that 91 percent of employers conduct credit checks for jobs with financial or fiduciary responsibilities. About 46 percent use them for applicants for senior executive positions. 

How are Pre-Employment Credit Reports Used?

A pre-employment credit report is becoming a more commonly utilized check for employers. Employers usually use a third-party credit check company to get the information and then look for potential red flags. These red flags might include: 

  • Late Payments: A credit report will show if an applicant has a history of late payments which could indicate that the employee is not responsible. 
  • Excessive Debt: Having a large amount of debt is a sign of financial distress. This could be looked at by employers as a reason for fraud or theft.
  • Poor Financial History: If a potential hire cannot handle money responsibly, they should not be hired for a position that requires them to handle money or consumer information.

If the employer finds the results be unsatisfactory, the job offer can be rescinded after the credit check. The applicant can be denied employment due to bad credit, particularly for jobs with financial responsibilities. 

Pre-Employment Credit Report Compliance Regulations

An employer needs to get written permission from the applicant to be able to check their credit. FCRA (Fair Credit Reporting Act) Compliance is extremely important. The employer must send a Pre-Adverse Action under the employer credit check law, including a copy of the report and a summary of the candidate’s rights if they are intending on not hiring the candidate. Then the potential employee has about five days to explain or correct any information. The employer must then give an Adverse Action notice which gives the name of the credit report agency and its contact information. 

Most states allow employers to fairly use pre-employment credit reports during the hiring process. However, some states and cities do not allow employer credit checks or have laws on how the information can be used in the hiring process so it is best to check to find out what is allowed. California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, Oregon, Vermont, and Washington have regulations that limit the use of credit reports. Under the FCRA, there are some things that the employer must do when conducting a pre-employment credit report. For example, the report must be current to the last seven years. 

How Employees Can Prepare for a Pre-Employment Credit Check

Most employees who are looking for a job ensure that their resume and cover letter are up to date, but what about their credit? Everyone is entitled to one free credit report every year from one of the three nationwide credit agencies. Before starting the job-hunting process, applicants can check their own credit to ensure there are no errors. They can also increase their chances of being hired by not carrying a large amount of debt and paying their bills on time. 

The EEOC (Equal Employment Opportunity Commission) regulates practices regarding credit checks. Employees have the right to report any credit checks that have impacted them negatively because of age, gender, ethnicity, or race.

If an employee knows a company will require a credit check as part of the hiring process, it is best to be honest about any problematic issues. When the employer asks to run the check, the potential hire should be upfront about what the results might be, and what has been done to correct the issues. A poor credit report does not mean that the employee will be passed up for the job. Periods of financial hardship can happen to anyone, as long as there is an explanation for it. 

An increasing number of organizations are using pre-employment credit reports to ensure that prospective employees will be able to handle their job responsibilities. These reports limit the information employers can see, but they still provide some insight into a candidate’s financial history and debts. If you’d like to implement a pre-employment credit report at your company, contact us today