Find out why credit reports for employment are often conducted by companies and organizations before offering you a particular position or promotion.
More and more companies are running credit checks on applicants, and this information is often an important factor when deciding who to hire. Many employers feel that your financial history is a good indicator of your suitability for certain jobs, and poor scores may make it more difficult for you to find the job of your dreams.
Although credit report background checks are becoming more common, very few employers will conduct checks on all applicants. Typically, pulling credit reports for employment are limited to management positions or jobs that require access to money, assets, company credit cards, or financial records.
In fact, the Society for Human Resource Management states that 91% of employers conduct credit report checks when hiring for positions of financial responsibility, while 46% of companies run checks for senior executive positions. However, only 13% of employers conducted credit checks on all job applicants.
Why Do Employers Check Credit Reports?
There are a number of reasons why an employer may want to check your credit reports for employment review, and these may vary depending on the company or the position for which you have applied.
1. Verify information. Your credit report will confirm your identity as well as your employment history and social security number. This protects both you and the employer from potential fraud or misrepresentation.
2. To assess trustworthiness and responsibility. Many employers believe that a credit report provides insight into an applicant’s ability to meet obligations and handle responsibility. They are concerned about hiring people who cannot manage their finances, especially if the salary being offered is not sufficient to cover monthly debts. Employers will look for liens, late fees, high credit card debts, and a sudden appearance of new accounts when making their decision.
3. To prevent theft. There is often a preconceived belief that a correlation exists between poor credit scores and the likelihood of theft, embezzlement, or criminal activity. While there are no statistics to really prove this theory, people with a lot of problems on their credit report are not usually recommended for certain positions such as financial executives, bank tellers, investment advisers, or any other job that requires handling money.
4. To Avoid Lawsuits. Many companies will conduct credit report background checks to avoid liability for negligent hiring. If money or possession are stolen, many people will sue the company rather than the individual employee because they belief they have a better chance of reaching a settlement. A credit check protects employers by helping them identify risks and reducing their liability or financial obligations if legal action is taken.
Employment Credit Report
There is more than one type of credit report, and which one is given depends on the purpose for the request. A credit report viewed by an employer, or potential employer, is called an Employment Credit Report and is a slightly different version from the one available to lenders or creditors.
Credit reports for employment contain information about your employment and payment history as well as your current debt load, but it does not include:
1. Credit scores: Credit agencies believe that credit scores have no bearing on a person’s ability to do their job and, therefore, will not include this information in their report. Most employers are looking for specific red flags such as delinquent accounts or excessive amounts of debt, and are typically not concerned about your credit score anyway.
2. Account numbers: The type of credit as well as the creditors (ie. Name of loan or credit card company) will be listed, but specific account numbers will not be included.
3. Your age and date of birth.
Credit Report Background Check – Know Your Rights
Since conducting credit report background checks is becoming more common, many people are concerned that information contained in their report may be held against them and prevent them from getting a job that they are otherwise qualified for.
Requesting a credit check is legal, and an employer has the right to ask for one, especially in certain situations. But, you have rights as well, and it is important that you know what they are so you can handle the process properly and professionally.
1. The Fair Credit Reporting Act requires employers to inform applicants if a credit check is part of their hiring procedure, and they must get authorization to run the check. In other words, your written permission is needed. You might not get the job if you refuse to agree, but failing to acquire your permission is a violation of your rights.
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2. An employer or company is required to inform you if something on your credit report is used against you. By law, they are supposed to give you a copy of your credit report and provide an explanation as to why the information affected your possibility for employment. You have the right to dispute the accuracy of your credit report and, legally, an employer is not supposed to take any action until you have had the opportunity to review the report and dispute errors. Most of the time, employers will come up with another excuse as to why you were not hired for the position or granted the promotion. However, if you feel that your credit report had a bearing and the proper procedure was not followed, then you have the right to seek legal counsel and question the decision.
3. A bankruptcy cannot be held against you. This is a “sticky” once since late payments and delinquencies, which are often a precursor to bankruptcy, can be considered factors for employment. Many employers will cite this reason rather than admitting that bankruptcy played a role in their decision. However, if you are told that your bankruptcy is a reason, then you can hire an attorney to help protect your rights.
Credit reports for employment are fairly standard procedure, depending on the company and position. If you know there could be a problem, be honest with employers and explain the situation to them before they even run the check.
Taking an offensive, rather than defensive, approach can often change the way an employer will view your report. Sometimes a temporary job loss, injury, or family tragedy can cause financial difficulties that are not necessarily an accurate reflection of your situation. If your status has changed and you are making efforts to improve your credit rating, then be up-front with potential employers so they are not surprised at what they find.
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