Credit checking is an option usually used by banks to assess the financial situation of potential lenders and see how good they are at money management. Lately, recruitment agencies are learning from them and hedging their risks by looking at the credit report. This is a typical background check, together with the criminal record.
1. Is it legal?
Credit checks for a potential employee are permitted by law, as long as the person agrees. This means that before performing any credit check, the employer requires written approval from the candidate.Â
A candidate can decline this, and in this case the recruitment agency can't pull a credit report on the candidate's name, but most likely they will not continue with the person since there could be trust issues. It is also legal for a company to decline the application completely if you deny them this right, it is not considered discrimination.
Some places have prohibited entirely such practices, including California, Oregon, Illinois, and Nevada. In New York, these are restricted to jobs in the financial sector.Â
2.Â Why is a credit check necessary?
If the job involves money management, setting budgets or making investments, a credit check is just making sure you are hiring somebody sane enough to manage their wallet first. Even if a candidate's finances are not necessarily a reflection of their business skills, they are a reflection of the risk adversity and the capacity of making the right decisions.Â
Activity sectors like banking, finance, and accounting are most interested in determining the financial skills of future employees. However, other jobs also deal with sensitive data. A credit report can show a lot about a person's trustworthiness.Â
3. What is included in the credit report?
This document consists of personal data like name, date of birth, address, registered electoral status and a bunch of financial data. The most sensitive include the total amount owed, any house repossessions or declared bankruptcy, county court judgments as well as any missed payments.
4. How do companies get the credit report?
Recruiters and employers interested in the background check of the potential candidates opt for third-party companies. It is important to use reputable sources that also perform identity checks and return all the data about a candidate, taking into consideration all aspects, including name changes, marital status changes, immigration and more.Â
5. How important is the info for the employer?Â
Most candidates are worried that such an intrusion in their details could lead to a negative answer from the employer. According to a poll from the UK, 87% of the managers would not turn down an excellent candidate for a bad financial record. The same survey found out that only 13% would do so only if they applied for a financial role. About one-third of employers run financial background checks on the candidates since the cost of a bad hire is sometimes more than the annual salary of the employee.
6. Does this affect the candidate's credit score? Should it be limited?
It is vital that recruiters only perform a soft pull, which is not similar to that of a credit institution. This means that the candidate's score is left intact and there are no limitations on how many times this report can be accessed.
7. How far back does the report go?
Since even the worst felonies remain for a maximum of seven years (or ten years in the case of bankruptcies), on the credit score report, the data shouldn't be older than that.Â Â
8. Can the candidate see the report and dispute the information?
Since the candidate has the right to be informed at all times about the status of the application, it can see the content of the report as this influences the selection process. The applicant is entitled to a free copy of the report used for the evaluation.
If there are any inaccuracies in the report, as it happens in more than 20% of cases, the candidate has the right to dispute the information and fix them. It would be a good idea to provide a fresh copy of the data once the errors have been corrected.
9. What is the best approach?
If the company plans to ask a candidate for a credit report, it is fair and good practice to state this in the job ad. This way, potential candidates can decide upfront if they are ready or not to go through such scanning and even check the report before applying or get professional help like that offered by Crediful to improve their score.Â
This also gives the candidate the necessary time and state of mind to prepare the answers to delicate questions regarding bankruptcies or more extended unemployment periods.Â
The keyword is communication and clear management of the expectations.Â
Conversely, the candidates can also perform a financial check-up of the future employer.Â