Employee Credit Checks

Conducting an employee credit check can be a good tool to see how individuals handle their own monies and accounts. If they are going to be handling anything financial in the job they are applying for this is a great search to conduct on your potential applicant.  A Society of Human Resources Management (SHRM) survey reports that 60% of employers get credit checks on applicants for some or even all positions. What would be a red flag for an employer that is looking at an employee credit check? Could it be how they handle their own accounts? Do they have a lot of late payments or possible accounts in collections? How much debt do they have out there and are the credit cards maxed out? Those questions are not only useful but could benefit the employer with making a hiring decision.

What Shows Up on Employee Credit Checks

When an employee pulls up your credit report, what exactly are they looking at and what can be found on it. Below are some of the different categorizes that can be found on your credit report:

1. Confirmation of the applicant’s name
2. Other addresses that the applicant resided at
3. Total Lines of Credit
4. The type of credit open
   • Loans
   • Car payments
   • Mortgages
   • School loans
   • Credit cards
   • Medical
5. Delinquent Lines of Credit
6. Collections Information
7. How long the accounts have been open
8. Accounts that are closed
9. Balances

This employee credit check will not count against the applicant’s “pull limit” for credit scoring, nor will it include any account numbers or invasive information. The credit report will not show the employer what your credit score is.  Credit reports allow our clients to make informed, unbiased decisions about an applicant’s finical integrity.

Laws and Legal Issues behind the Employee Credit Check

Just like conducting criminal record checks, an employee credit check has different laws and legal issues that come with them. Employers or Third Parties can’t run a credit report just on any applicant. The third-party vendors, such as Background Check Central, need to follow by the Fair Credit Reporting Act (FCRA). An article was written by Alison Doyle from The Balance of Careers discussing some of the things that employers need to abide by when running a credit report:

1. The employer must get the written approval from the applicant.
2. The report can’t include old information.
   • Negative information can’t be past 7 years
   • Bankruptcy cannot be included that are over 10 years.
3. Laws around bankruptcy information
4. Must be told if the report is used against you
5. You are entitled to what is in the report
6. You can dispute the information
7. Some state laws vary. Check with your state’s department of labor if you want to know the local laws about credit checks.

There are currently some states and cities that current limit employers’ use of credit information in employment. The states and cities include California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Chicago, Illinois, Maryland, Nevada, New York City, New York, Oregon, Philadelphia, Pennsylvania, Vermont, Washington State and Washington, D.C. Each state has their own exception to the rule, and some of those exceptions can be found here which was provided by Society of Human Resources Management (SHRM).

Benefits and Risks to conducting an Employee Credit Check

There are some benefits to you, as an employer, to running credit checks on your applicants. For example, you are currently looking for an accounting manager for your financial company. You are not only looking for someone that is qualified with the right educational background and has no criminal background but also looking for someone that can manage money. You are wondering to yourself, how are you going to be able to figure that part out without asking the applicant directly how financially stable they are.  You want to look for a third-party vendor, such as Background Check Central, that can conduct employee credit checks on applicants. Once the report comes back to you, you will be able to look at how they handle their own monies. Do they have a lot of credit out, have they had any accounts go into collections or are they behind with any bills? Since they will be handling your accounts and money you want to make sure they can handle their own first. Having this information for you will be a great benefit when making a hiring decision.

Now let’s look at that example in a different way, you hired an accounting manager for your financial company, but you did not conduct an employee credit check on the applicant. You are unsure how they handle their monies and how financial stable they are. You are going off the word of the applicant on how they handle money. Then 2-3 months down the road, you start to see accounts failing, bills not getting paid, etc. The applicant you just hired is falling behind on the tasks that you needed someone qualified for the position to do. If you would have ran a credit check on them, you would have noticed that they do not pay their own bills on time, they have a lot of accounts in collections, etc. If you would have taken the time to conduct an extra search when the background check was completed, you could have found out this information.

Maximizing employee background checks on your applicants will be the key to a beneficial check. Give us a call today so we can discuss how to benefit your hiring process.