The Importance of Credit Check For Employment

Category: Finance 24

Employers look at a credit report when considering an applicant’s application as a precautionary measure. Not only does this show that the company tried to learn more about the applicant, but it can also protect itself from lawsuits resulting from negligent hiring. However, negative items on a person’s credit report still pose a red flag to employers.

Law requires Pre-employment Credit Checks

Pre-employment credit checks are required by other states in the U.S. The legislation was passed after a multi-year campaign by a coalition of concerned citizens. They organized meetings with elected officials, published op-eds, and handed out fliers. The original legislation only contained one exemption: when it was necessary by law.

The law permits employers to run a credit check for employment on job applicants if the applicant has given written consent. The information obtained from such a check includes the job applicant’s name, address, previous employer, and credit score and balances. In addition, it may also include items in collections, late payments, and bankruptcy. Many employers recognize the need for pre-employment credit checks.

Generate A Soft Inquiry On Your Credit Report

If you’re applying for a job, the company conducting the background check will pull your credit report. This will be a soft inquiry, which will not lower your credit score. This type of credit check is common and required by certain industries. Under the Fair Credit Reporting Act, employers must request your permission before performing a credit check.

Although soft inquiries are similar to hard inquiries, they may look different if you do not initiate them. Soft inquiries are typically initiated by other companies or lenders conducting periodic reviews of your credit accounts. They can also occur when you check your credit report or use a credit monitoring service. As long as you know the different types of inquiries, you can limit the number of hard ones.

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They Require Your Consent

Under federal law, employers cannot hide consent requests for credit checks on general job applications. They must be on a separate page from the rest of the application. The consent request must also state what is being requested. Online job applications can’t rely on a checkbox to run a credit check on you.

Under the FCRA, employers must obtain your written consent before running a credit check on you. The information a prospective employer will receive from a credit check will include your name, address, previous employers, open lines of credit, amounts owed on those lines, and late payments or bankruptcy. Many employers understand that job-seekers face financial challenges, and, therefore, may want to know if you’re able to repay their debts.

They Can Improve Your Chances Of Getting A Job

Many employers will run credit checks on potential employees. It is common practice to allow applicants to explain why they are being screened. If you have credit issues, it is best to address these with future employers and make changes to improve your credit. Nevertheless, you can negotiate settlements with your creditors if you already have debts and need to apply for a new job. While these settlements won’t completely remove negative items from your credit report, they will give the employer a more positive view of your financial situation.

Although credit checks are not necessary for employment, it is a safety measure for employers looking to hire new employees. This practice shows that employers have conducted a thorough background check on prospective employees and are evaluating the risks of hiring someone with a bad credit report.

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