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The Value Credit Checks Provide the Hiring Process

  • April 18, 2021

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The standard hiring process generally relies on an application form and possible skills tests when they apply. However, many companies are realizing that credit history checks also provide insight into candidate behavior that has already occurred, providing potential flags for risks that could be coming into an organization if not prevented ahead of time. These hiring risks can include candidates who have engaged in past financial activity showing a pattern of behavior that can expose a company to legal liability, a lack of concern for fiscal responsibility, and risk for the company’s assets via theft or embezzlement. A proactive credit history check can go a long way in validating a good hire or preventing a bad one, which is why it is such a key additional layer to apply beyond the standard job application form and interview.

The Components of a Complete Credit Check

At a summary level, an employee credit check on an individual provides a viewer how well a person has handled his or her debt and financial obligations. This includes information on revolving debt, secured loans like mortgages, student loans, and bill payments. Where a person has had financial problems, the report will also show when matters became serious as well as what type of debt was involved. The credit check won’t typically give a summary of a candidate’s credit score, but it will provide a clear picture on how well a person handles their financial life. And that can have ramifications for a company if the employee-to-be will be handling that company’s assets as well.

Rules and Regulations Apply

Employers don’t get to arbitrarily run credit checks on people for the sake of information or padding their own market analysis databases. Instead, anyone utilizing a credit report has to follow the laws under the Fair Credit Reporting Act or FCRA, including getting consent from the individual first. Getting consent for information access gives the individual the ability to understand what information will be visible by the employer. Once consent is obtained, the employer has a responsibility to protect the credit report and make sure it doesn’t get irresponsibly exposed. There should also be a defendable nexus between the need for the report and the position a candidate is being hired into. Typically, vetted positions tend to be in management, responsible for financial assets or information, have confidential access and security clearances, or will work in areas where credit reports are required on employees.

Employers Have to Prove Their Validity

Companies don’t get to start pulling credit reports on people as desired. The FCRA requires that an employer will be credentialed before having access to employee credit check information, which can include a physical visit to confirm the nexus of the business and position function to the need for credit report data. Anyone violating this protocol could run into problems with both federal and state laws and related penalties. So, it’s important to start off on the right foot with a clear plan of what kind of positions need a credit check, the rationale for the information check, and a method of protecting records once vetting begins and collects sensitive individual data in hiring.

Because the nature of a person's financial history and behavior pattern isn't directly work-related but can have a potential bearing on work performance, companies operate in a gray area when it comes to employee credit checks. Understanding both the vetting value as well as the responsibility an employer takes on using this information is key in making it useful, valuable, and worthwhile in the hiring process.