Background Checks

Doing a credit check is another tool that may be used as part of a thorough background check on candidates for employment. In a nutshell, a credit check is a summary of the money someone owes to others. Normally, lending institutions, credit card companies, and retailers who extend credit to their customers use credit checks to decide whether or not the person seeking credit is a good credit risk. However, it’s becoming increasingly popular for employers to obtain credit reports on potential job candidates. But, is that a good practice?

Some employers use credit reports as a way to screen job seekers out of further consideration for employment, just as a credit card company might use a credit report for their credit card applicants. The notion is that credit worthiness can be a predictor of how well someone will perform on the job. This concept is, however, debatable. Why? How can anyone possibly infer things like management style, skill sets or core competencies from a credit report? Well, the point is, you can’t.

Reasons to Perform a Credit Check

There are two valid reasons for doing a credit check on a candidate for employment:

The Nature of the Position

An employee credit check is appropriate if the nature of the position requires it. For instance, if an employer is going to hire someone who will have access to company funds, financial records, or the combination to the company safe, it would be appropriate – and reasonable – to have a credit check performed. A candidate who’s having serious financial difficulties could be tempted to access company funds for personal gain or to fend off creditors. Furthermore, if a candidate can’t manage his or her own personal finances very well, it’s not unreasonable to assume that they wouldn’t do any better handling the company’s funds.

If Poor Credit Could Affect the Candidate’s Ability to Do the Job

A credit check is also appropriate if the prospective employer has a valid reason to believe a candidate’s personal financial position might adversely affect their ability to do the job. For instance, if financial difficulties result in a court-ordered wage garnishment to be imposed on the employer or if the candidate is going to be spending a significant amount of time away from the job dealing with collection agencies or being in court, then performing a credit check would be a reasonable step to take before making a hiring decision.

What Does a Credit Check Consist Of?

What does a credit check contain? It will disclose every place where a candidate for employment has lived and also applied for credit, such as applying for a credit card, car loan, personal loan, or home loan. If a candidate for employment lived in a community and didn’t apply for credit, that community will not show up on the credit report.

If you opt to perform a credit check on any candidates that you’re considering hiring, and they agree to have it performed, know that there are limits to what you will and will not have access to. The Fair Credit Reporting Act, passed in 1970, is a federal law that aims to protect what information will be available to background check agencies.

Here is some of the information that will appear on a credit report:

  • A summary of how much money is owed on credit cards and bank loans.
  • Credit limits, civil litigation involving credit, collections, and bankruptcies.
  • Past-due or late payments on credit cards or loans.
  • The types of loans, terms of payment, and how much the payments are.
  • A disclosure of any other credit reports that have been requested on the candidate for employment.

Should Your Company Conduct Credit Checks on Candidates?

Not all of this information will be relevant to a prospective employer. The purpose of this blog is simply to point out what credit reports contain. In summary, should credit reports be run on every candidate for employment? No – only if the position to be filled requires it or if there is a valid reason to believe that money problems will have a negative effect on overall job performance.

A credit check makes sense as part of a thorough background and reference check, particularly if the position is going to include access to the company cash drawer, credit card, or checking account. However, it’s neither a good idea nor fair to the candidate to be the only check done on a candidate for employment – just as basing a hiring decision based on the candidate’s height really doesn’t make any sense.

Barada Associates is the Leader in Background Checking Services

Barada Associates is a leading company providing reference reports, employment verifications, and background checks to employers across the United States. Founded in 1979, Barada is one of the first employment screening businesses in the country. We help companies hire qualified talent that fits a company’s culture and environment through extensive background checks. Contact Barada Associates to request a quote or to set up a meeting.