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Credit Checks: What Employers Need to Know

Credit Checks: What Employers Need to Know

Some organizations utilize credit reports as part of the background screening process, although there has been debate as to the legality and necessity of checking an applicant's credit prior to a hiring decision.

Generally, a candidate's financial status will not come under scrutiny unless the position necessitates either handling money or having authority over the spending of large amounts of money.

California is one state that limits when credit reports can be run and how employers are able to use credit reports in making employment determinations. State law requires that companies give applicants notice before checking their credit reports, and follow up if this information becomes the basis for a negative employment decision. Restrictions under the federal Fair Credit Report Act (FCRA) carry similar requirements.

The Equal Employment Opportunity Commission (EEOC) may view credit checks as a discriminatory means of bringing in new workers, as doing so can have an adverse impact on protected classes. For example, employers must not apply a financial requirement differently to people "based on their race, color, national origin, religion, sex, disability, age, or genetic information." An employer may also have to make an exception to a financial requirement for a person whose disability makes them unable to meet that requirement.

Additionally, employers checking a candidate's financial history will only see a modified version of that individual's credit report. An employment credit check typically covers financial history, including summary of accounts and credit lines, debts, mortgage and car payments, student loans or other types of bank loans, payment history, address and prior employment history (if available).

Prior to the consideration of credit history as a background check tool, employers should be able to show the business necessity of the information, review their state's credit screening limitations, and consider the potential for any discrimination claims. When performing credit checks, companies must follow FCRA notice and documentation requirements, with these details clearly spelled out in an in-house background check policy.

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This is not legal advice, for legal advice please seek legal counsel.

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