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Employment Credit Reports and Pre-Employment Reports

Using credit reports in employment background checks is both common and controversial. It is common because employers wish to have the latest and most robust information available about their applicants and employees to help insure they get and retain the best possible working force. It is controversial because some have argued that credit checks are not necessarily predictive of job performance, and that credit reports per se may oftentimes not be relevant to a current employee's or the job applicant's duties.

Regardless credit reports still seem to be used by companies to evaluate their workforce. In one 2012 study1, it was estimated that as many as 47% of employers run background credit checks on at least some of their employees and applicants. So the practice is still popular especially for jobs that do have relevance to credit reports, like financial positions and jobs where cash is handled.

If you are an employer who decides to include credit checks in your job decisions, there are State and Federal laws you will need to comply with.

For example, at the Federal level you will need to comply with the Fair Credit Reporting Act which generally requires that employers who order employment credit reports notify the individual that a credit report may be ordered, and get the written permission of the individual to obtain such a credit report. Usually that means the employer has given that individual a separate document that discloses a credit report is involved in the employment process, and that the individual has given permission to the employer to obtain the report.

Furthermore the applicant/employee is entitled to a copy of the credit report if they request one, and, in the case where the employer is taking an adverse action toward the employee/applicant based on the report, the employee/applicant must be given a copy of the credit report before any adverse action is actually taken.

Of course, there are other responsibilities for the employer and rights for the employee applicant. The company that prepares and delivers the credit report to the employer will provide various documents about the rights and responsibilities of both the employer and the applicant/employee.

Under law the employer must use the credit reports only for employment purposes. Also the employer decides whether to get one of the three national credit bureaus or all three. To save money an employer may get only one.

Credit scores are not available for employment credit reports as credit scores are predictive of credit not employment. At this time there is no credit score that predicts job performance or attributes. By the way the employment credit report inquiries do not lower your credit score either, as employment credit reports are coded at the time of ordering as for employment purposes only, not for credit.

Employment credit reports will not include account numbers on the credit report either, and age or birth date is not noted on the credit report.

Q. Why should I use credit reports as part of my employee background screening?
A. Most employers who use credit reports as part of the background check do so because they think it will reduce employee theft and financial dishonesty. Plus the additional information may guard against negligent hiring liability and give the employer a higher level of trust in their hiring decision.

Q. Who should I run a credit report on as part of my background checks?
A. Most employers respond that they order credit reports as part of the background report when the applicant will have financial responsibility or be in a position of financial trust. That may include responsibility for cash, or banking, or accounting, or responsibility for other's property or finances.

Q. Can I run credit reports on existing employees?
A. The Fair Credit Reporting Act allows employment reports, subject to all the rights and responsibilities discussed in the Act, in cases of "evaluating a consumer for employment, promotion, reassignment, or retention as an employee".

Q. What laws do I need to comply with for employment credit reports?
A. Certainly the Fair Credit Reporting Act on the Federal level. As to State laws, there are too many for us to track. It is in your best interest to ask a lawyer for professional advice for employment screening laws including all Federal and State laws that may apply to you.

Q. Where can I obtain more information on employment background screening services?
A. Try the National Association of Professional Background Screeners2 or the Society for Human Resources Management3.




1 The Society for Human Resource Management: The Use of Credit Background Checks in Hiring Decisions
2 The Society for Human Resource Management