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5 Vital Reasons for Checking a Job Applicant's Credit Score

Employers occasionally review credit history to gain an understanding of a prospective employee, looking for any financial challenges that might suggest potential risks like theft or fraudulent behavior. They don’t view one’s credit score but a modified credit report.

These checks are more common for roles requiring security clearance, money handling, access to sensitive consumer data, or confidential corporate information. A current employer might also conduct these checks before a promotion.

 

Credit Reports vs. Scores

One’s credit report and score are distinct but interconnected aspects of your financial profile.

The credit report offers a comprehensive overview of your credit history, encompassing details about credit card accounts, balances, available credit, and payment history. It provides a detailed narrative of your financial behavior.

On the other hand, the credit scores condense this extensive information into a three-digit number. It acts as a summary or rating of your creditworthiness.  A higher score signifies lower risk, indicating a higher likelihood of loan repayment. Conversely, a lower score suggests higher risk, indicating potential difficulties in repaying loans.

 

What Information Do Employers Access?

When employers conduct a credit check, they gain access to a report that mirrors much of what lenders review, except the score and the individual’s date of birth.

Employers receive a comprehensive background report encompassing various facets beyond credit history. This report includes details about your past employment, insurance records, legal activity, and credit information.

While employers don’t have visibility into your average credit score during these checks, they can access specific elements within your credit report. This report includes information about your: 

  • Open Lines of Credit (Such As Mortgages)
  • Outstanding Balances
  • Records of Auto or Student Loans
  • Occurrences of Foreclosures
  • Late or Missed Payments
  • Any History of Bankruptcies
  • Accounts in Collections 

These details offer employers a glimpse into your financial history and behavior.

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5 Crucial Reasons Why This Report Is Necessary

Checking a job applicant’s credit rating has become a standard practice for many employers, sparking debates about its relevance and ethics. While controversial, several vital reasons underpin the importance of this process.

1. Shows A Person’s Financial Behavior

A candidate’s Equifax, Experian, or Transunion credit score reflects their financial responsibility and management. Employers in roles involving financial oversight or access to sensitive information may view a strong credit rating as indicative of trustworthy behavior. 

A high score suggests a history of timely payments and responsible debt management, qualities essential for positions handling finances or confidential data.

2. Regulatory Compliance

Specific industries, especially those in the financial sector, necessitate regulatory compliance. Banking, insurance, or investment brokerage jobs often require employees to handle large sums of money or sensitive financial data. 

Checking credit scores aligns with regulatory mandates to ensure individuals with sound financial standing are entrusted with these responsibilities, mitigating potential risks of fraud or mishandling funds.

3. Reflects an Applicant’s Reliability

Consistent late payments, excessive debts, or frequent changes in financial status might raise concerns about an individual’s ability to manage stress or maintain stability, traits vital for many job roles. 

Employers often seek candidates with stable financial backgrounds to minimize the risk of unexpected disruptions in their employment due to financial stress.

4. Offers Insights on One’s Problem-Solving and Decision-Making Skills

Responsible financial behavior often correlates with prudent decision-making and problem-solving abilities. Employers perceive an excellent credit score as indicative of an individual’s capability to make informed decisions, analyze situations, and manage resources effectively.

5. Provides Context for Red Flags or Discrepancies

While not a definitive judgment, inconsistencies between claimed qualifications and financial behaviors might prompt employers to investigate further. For instance, a candidate with a strong resume but a history of financial mismanagement could raise concerns about integrity or honesty.

However, it’s crucial to address the criticisms surrounding this practice. Some argue that a credit score check result does not inherently reflect job performance or character. Financial setbacks might stem from various uncontrollable circumstances rather than irresponsibility. 

Furthermore, this practice can perpetuate socioeconomic biases, as disadvantaged students might have lower scores despite competence and qualifications.

While controversial, checking a job applicant’s credit history holds significance for various reasons. It can provide crucial and valuable insights into a candidate’s financial responsibility, stability, decision-making skills, and potential red flags. 

Nevertheless, it’s essential to approach this practice with discretion, considering its limitations and potential biases, to ensure fair and equitable hiring processes. 

Employers should weigh the relevance of credit scores against the specific job requirements and consider alternative means of evaluating an applicant’s suitability for a role.

 

How Will Employers Use These Reports?

Employers often rely on online credit reports to examine an applicant’s credit history spanning four to seven years. 

While lenders prioritize current credit health when assessing new accounts, employers might raise queries about discrepancies from a few years back despite a candidate’s current credit well-being. 

It’s important not to consider every flaw in a credit report as an immediate red flag. Most employers allow candidates to clarify their financial circumstances and address any issues reflected in their credit reports before finalizing a hiring decision.

Credit Score Check and Ethical Reporting Practice

The Fair Credit Reporting Act (FCRA) serves as a safety net for applicants as it regulates how employers access and use credit report details. Under these guidelines, employers must:

  • Inform applicants before checking their credit history.
  • Obtain written consent from applicants before accessing their credit history.

Specific states may impose additional constraints on employers’ utilization of credit report data in hiring decisions, and these laws can differ based on geographic location. 

Despite having access to certain credit information to check the credit score, employers receive only a restricted version of the complete credit report. The Equal Employment Opportunity Act reinforces applicants’ rights to privacy.

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Work With ADC for a Streamlined Credit Check 

For decades, ADC has simplified the hiring process for employers. Our primary aim is to instill confidence in your hiring decisions. We offer a myriad of options for credit report checks for employment.

Our team of background investigation specialists allows you to tailor your background checks, including drug tests, screening services, and social media account searches. Kickstart the process by completing a form on our website today. 

Discover how our high-quality, swift, comprehensive credit score and employment screening solutions, including online credit report checks, can enhance your hiring procedures.