Several years ago, HR.com issued a report sponsored by NABS, the National Association of Background Screeners, that revealed that approximately 95% of organizations and companies choose to perform a credit background check on potential hires, with about 15% pulling a credit background check for specific financial reasons.
Potential employers choose to utilize a background and/or credit background check as the information contained within the report provides hiring decision-makers with sufficient data to gauge a job applicant’s overall trustworthiness and other preferred candidate qualities. It would not be unusual for a hiring committee to consider someone’s personal financial management history as a prime and accurate indicator of their potential ability to manage the high-stakes, costly work project for which they are being interviewed.
The reality is, it is relatively common for a credit background check to be a part of a job application process – especially for managerial, financial, upper-level positions or promotions, for example. But, in response to the Fair Credit Reporting Act (the FCRA) (and a number of state labor laws), there are protections in place that set forth rules that prevent employers from looking into one’s background or credit history without expressed, written consent.
On the other hand, specific industries must comply with state laws that require industry personnel to pass a thorough credit background check even to be able to work in the industry. Examples would include social workers, daycare workers, or any professional worker who must work within a client’s home – which also includes their room or unit in an assisted living facility.
Potential employers that choose to include a credit background check are provided with a limited version of the job applicant’s credit report. The information provided to potential employers provides personal information that verifies the applicant’s identity like –
- An applicant’s address and social security number, but not a birth date.
- An applicant’s financial loan & credit card payment history or current status (i.e., is it in collections?) but will not disclose specific account numbers or any information that may relate to a spouse’s credit profile.
A Credit Background Check for Employment Purposes Will Not Affect a Credit Score.
When a credit background check is issued for a potential employer, the actual request is known as a soft inquiry. Unlike its more impactful counterpart – the hard inquiry (a query that results from a potential creditor investigating a credit profile to make a credit decision to likely lend money), a soft inquiry is not viewed as a request for possible credit. As a result, the soft inquiry is not considered to have the same negative impact (or a red-flag as it is known in the biz) on one’s credit profile, and therefore, has no effect on the associated credit score.
And, although not related to soft inquiries in any way, consumers should know that the more ‘hard inquiries’ found on a credit profile (especially if they have all been pulled in a short amount of time), the more negatively impacted a credit score will be. The reason is that many hard inquiries pulled in a tight time frame could indicate that the applicant has applied and received undisclosed credit, or that the applicant may be having trouble securing credit, for reasons yet to be known. Neither option reveals positive financial insights.
Employers Do Not Receive Credit Scores
Ironically, employers inquiring into the background and history of a potential employee will not be provided with a credit score as a credit score has little purpose and use in terms of employment decisions.
However, potential hiring managers and committees often utilize the contents of a credit background check to –
- Review the applicant’s written application and documentation to confirm the disclosed data and to determine the presence of potential fraud.
- Review the applicant’s ability to manage their own personal financial scenario appropriately.
The Take-Away
Utilizing a credit background check is a prudent way for employers to confirm if a job applicant’s disclosed information is accurate and honest. During the hiring process, an employer can implement this or a number of other security processes and methods that seek to protect both the company’s employees and customers.
Ultimately, a credit background check provides a comprehensive snapshot of a potential job candidate’s ability to manage this disclosed portion of their life. When added to the information gathered from the applicant’s references, a potential employer can begin to formulate an accurate depiction of the job applicant who is vying for the open position.
