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Helpful Insights Into Credit Screening for Employment

Chief financial officer running financials. Credit check concept

As of 2023, the average credit score in the U.S. was 715– an increase of over 25 points since 2010.

The “credit score,” most commonly analyzed by FICO®, is a reasonably reliable, general measure of one’s creditworthiness. It weighs factors such as delinquencies, credit utilization, average account age, and more.

We often obsess over this three-digit number, failing to realize that while it represents many financial behaviors over time, certain things can cause swift rises, drops, and recoveries. The FICO score is a good credit tool but not an end-all-be-all.

When conducting credit checks for employment, the FICO score is not included, which puts some employers on edge. However, the insights provided in a financial report can often be more telling than a three-digit number with little context.

The Differences Between Consumer Credit Reports and Employment Credit Reports

Thanks to the Fair Credit Reporting Act (FCRA), all consumers have the right to fair and accurate credit information. Consumers can dispute errors and get the information removed or updated. Some of the consumer rights under the FCRA are as follows:

  • Consumers must be told if information on their file is being used against them
  • Consumers have the right to know what’s on their file
  • Consumers have the right to ask for a credit score from credit bureaus
  • Consumers have the right to dispute incomplete or inaccurate information
  • Consumer reporting agencies must correct inaccurate, incomplete, or unverifiable information
  • Consumers must give consent before reports are provided to employers
  • Consumers may seek damages from violators

For consumers to determine if there are inaccuracies to be resolved, they have deep access to their financial history. They can request the details of what credit bureaus are reporting about them. While these reports aren’t always free, a consumer credit report can be very comprehensive and almost always includes a credit score.

With express consumer consent, employers can access most of this credit history. This may include

  • Credit accounts and payment history
  • Identification and address information
  • Past work history
  • Details including bankruptcies, liens, or collections

A credit check for employment will not include the following: 

  • Income
  • Credit score
  • Race
  • Religion
  • Political affiliations
  • Medical bills
  • Marital status

If you would like to see what a financial report looks like, you can find examples within our sample screening reports here.

Why is there a difference?

The FCRA was enacted to protect the consumer. While employers, with due consent, can have extensive access to a candidate’s financial records, information is withheld from employers that can create undue and unconscious biases that hurt an individual seeking employment. 

When Is Financial Screening for Employment Recommended?

While much more common in the financial sectors, credit screening for employment can benefit any industry. However, all employers conducting a credit check on candidates are encouraged to have a specific reason or purpose. Here are some situations when we would recommend conducting credit checks:

  • When hiring for an executive position
  • When hiring for an accounting or finance position
  • When hiring for a position that will have high access to company funds or financials
  • When hiring for a position that will facilitate loans or oversee large financial transactions
  • When screening tenants (this is not for employment, and the report will include a credit score)

How to Best Leverage Results

Hiring decisions can be made based on the results of a credit report. However, employers must be delicate and deliberate when using credit screening data. This includes providing appropriate pre-adverse and adverse action notices if negative information is a factor in the decision (you can learn more about adverse action document management here).

In addition to clearly knowing the “why” behind your credit screening practices, we recommend specifying the particulars of your credit scoring criteria as part of your formal background screening protocol. Such particulars include:

  • What positions or in what circumstances will candidates undergo a credit check?
  • What are the thresholds of acceptance or exclusion?
  • Will financial information be used with other screening information to make the most informed decision? If so, how?
  • Will follow-up interviews be conducted?

Comprehensive credit reports can provide valuable insights to employers– specifically those filling positions that deal with company, client, or consumer financials. Credit checks on employees are common in the banking, investing, and real estate industries or when hiring employees in accounting or finance departments. While credit scores may not be present, more in-depth details can be found that help paint a reliable picture of a candidate’s financial responsibility. This information can be leveraged to inform a hiring decision properly. 

Final Words

Regarding credit screening for employment, we encourage employers to have their purposes well thought out and their protocols well-defined. It is not recommended to frivolously conduct a credit check on every candidate, regardless of role. However, it can be an important part of a comprehensive background check for employment under the right circumstances.

For more information, contact us today.

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