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Credit Checks Improve Hiring Practices

Jan 08, 2020 MicroBilt News

Entrepreneur Magazine reports that companies who invest in background screening, including consumer credit reports, do better jobs, in most circumstances, when hiring new staff. There are many ways businesses use consumer credit reports within the hiring process – not all of them are punitive. One employer, for instance, reports using credit reports to determine a candidate’s ability to adapt and overcome the financial challenges they’ve faced in their lives.

Why Employers Conduct Credit Checks

Some people mistakenly assume that only specific businesses in financial sectors or those in sensitive, executive positions require credit checks. While few jobs actually require them, they are far more common than the average candidate realizes – with good reason. They provide a more intimate image of the candidate to help employers assess whether that is someone they would like to have on their teams.

Employer background screenings are far more common than the average person realizes, with 72 percent of employers conducting background screenings – 29 percent of which include credit reports. Why are credit screenings so beneficial to employers? They tell a story about candidates and provide key details about their:

  • Decision-making capabilities.
  • Ability to manage money.
  • Organizational skills.
  • Potential for theft.
  • Susceptibility to bribery.
  • Vulnerability to blackmail, which can be bad for the company image.
  • Additional step in identity verification process.

 The good news for employers is that you can conduct credit checks on candidates without fears of harming their credit records as this counts as a “soft” inquiry that doesn’t negatively impact their scores.

What You Need to Know about Employment Screening Credit Checks

Job applicants and candidates have rights. You must inform them if you are going to conduct a credit check before the check takes place. In fact, you must have their permission to conduct one. Additionally, there are restrictions in place concerning how that information is used and your responsibility for notifying candidates if you discover information in the credit report that would cause rejection. It’s called a “pre-adverse reaction notice.”

You must then allow candidates time to respond, to explain the red flags you found on your report. Sometimes temporary setbacks create snowball effects that impact credit, but that candidate is overcoming those setbacks and actively working to resolve those issues – this is something that might not show up on a credit report.

If there isn’t a sufficient explanation, you must then send a final notice, the “post-adverse response notice,” informing them of your decision and providing the name of the credit reporting agency and of their rights to obtain a free copy of the report if they request it within the next 60 days.

Some states have laws in place that actively prohibit credit checks except for specific, vulnerable positions, and others that restrict how the information in credit checks is used, as well. There is background screening software that can make sure you get access to the information you need to make informed hiring decisions without running afoul of state and local laws and regulations.