If you’re job hunting, you may be wondering why employers check credit . Here’s a look at some of the reasons why employers may pull your credit report.
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The Fair Credit Reporting Act
The Fair Credit Reporting Act is a federal law that regulates the credit reporting industry and protects consumers’ rights. It is important to know your rights under this law if you are ever asked to give your consent for an employer to check your credit report.
What is the FCRA?
The Fair Credit Reporting Act (FCRA) is a U.S. federal law that promotes the accuracy, fairness and privacy of information in the files of consumer reporting agencies (CRAs). An amendment to the FCRA, effective September 21, 1997, regulates CRAs that furnish reports about consumers to employers for employment purposes.
Under the FCRA, both the CRAs and employers who use CRA reports for employment purposes must take steps to ensure that the reports are accurate and used in a fair way.
The CRAs are required to maintain reasonable procedures designed to ensure the maximum possible accuracy of their reports. They must correct or delete inaccurate, incomplete or unverifiable information. They are also required by the FCRA to take reasonable steps to prevent the reappearance in later reports of information they have deleted at an employer’s request.
Employers who use CRA reports for employment purposes must have a written policy or agreement which includes:
-a certification from the employer that they will not use the information in the report in a way that violates any federal or state equal opportunity laws;
-a certification from the employer that they have provided a copy of this notice to each person who is the subject of a CRA report and that they will provide a copy of this notice to each such person before taking any adverse action based on any information in such person’s CRA report; and
-the name and address of each CRA from which an employer has obtained a consumer report for employment purposes during the past year.
What does the FCRA allow employers to do?
Under the Fair Credit Reporting Act, employers are allowed to conduct a credit check on job applicants and employees. However, there are certain rules that employers must follow in order to comply with the FCRA.
First, employers must notify the applicant or employee that a credit check will be conducted. Second, the employer must obtain the applicant or employee’s written permission to conduct the credit check. Third, the employer must provide the credit reporting agency with a “notice of disposal” once the credit report is no longer needed for employment purposes.
Once the employer has received the credit report, they may use it for employment purposes only. The information in the credit report cannot be used for other purposes, such as making housing or lending decisions.
The FCRA also gives applicants and employees the right to know if their credit was used against them in an employment decision. If an employer decides not to hire an applicant or take adverse action against an employee based on information in theircredit report, they must provide notice of this decision to the applicant or employee. The notice must include information about the consumer reporting agency that suppliedthe report as well as contact information for that agency.
The Advantages of Checking Credit
There are several reasons why employers check credit as part of the hiring process. One reason is that employers want to see if the applicant is financially responsible. Checking credit can also give employers a sense of an applicant’s character. Additionally, employers may check credit to see if the applicant has any bankruptcies or judgments against them.
What are the advantages of checking credit?
There are several advantages to checking credit when screening job applicants. Credit checks can provide employers with valuable insights into an applicant’s financial responsibility, work history, and personal character.
Credit checks can help employers to predict job performance. Studies have shown that there is a strong correlation between credit health and job performance. For example, employees with poor credit are more likely to be late or absent from work, and are also more likely to have higher rates of turnover.
Credit checks can also help employers to avoid hiring candidates with a history of financial problems. Employees who have poor credit are more likely to experience financial difficulties, which can lead to workplace theft or embezzlement. Additionally, applicants with poor credit may be more likely to file for bankruptcy, which could leave the employer on the hook for unpaid debts.
Finally, credit checks can provide employers with information about an applicant’s personal character. Applicants who are dishonest about their credit history or who try to hide negative information may also be dishonest in other aspects of their life. Additionally, applicants who have a history of making poor financial decisions may not be good candidates for positions that require sound judgment and decision-making ability.
How does checking credit help employers?
Many employers check credit as part of the background screening process for new employees. There are a few different ways that credit checks can help employers make better hiring decisions.
First, credit checks can give employers a glimpse into an applicant’s financial responsibility. This is especially helpful for positions that require handling money or managing finances. If an applicant has a history of poor financial decision-making, it could be an indication that they are not well-suited for the position.
Second, credit checks can also help employers identify applicants with a history of fraudulent activity. This is important for positions that require access to sensitive information or company resources. If an applicant has a history of financial fraud, it could be an indication that they cannot be trusted with sensitive information or company resources.
Lastly, credit checks can help employers assess an applicant’s risk level. This is helpful for positions that come with inherent risks, such as management positions or positions that require access to company resources. If an applicant has a history of financial problems, it could be an indication that they are more likely to take risks that could potentially harm the company.
Overall, checking credit is just one tool that employers can use to help them make better hiring decisions. While there are some advantages to checking credit, it is important to keep in mind that there are also some potential disadvantages. For example, credit checks can sometimes produce inaccurate results or unfairly penalize applicants who have experienced financial hardships beyond their control.
The Disadvantages of Checking Credit
Checking credit can be a way for employers to screen out applicants who may be high-risk. However, there are also a few disadvantages to checking credit. Employers may discriminate against applicants with poor credit, which can limit opportunities for those with bad credit. Additionally, checking credit can be costly and time-consuming for employers.
What are the disadvantages of checking credit?
There are a few potential disadvantages of running a credit check on potential employees.
First, it may discourage qualified job applicants from applying if they know their credit score will be checked as part of the hiring process. Second, checking credit may disproportionately affect certain groups of people, such as minorities and low-income individuals, who are more likely to have lower credit scores.
Third, employers may inadvertently violate state or federal laws if they use credit information to make hiring decisions. For example, the Equal Employment Opportunity Commission (EEOC) has sued employers for using credit checks in a way that had a disparate impact on African American and Hispanic applicants.
Fourth, some states have enacted laws that limit an employer’s ability to check an applicant’s credit history. Finally, checking an applicant’s credit history is not necessarily predictive of job performance and may not be worth the time and resources required to do so.
How can checking credit hurt employers?
There are a few ways that checking credit can hurt employers. For one, it can lead to costly litigation. In 2014, the EEOC filed a lawsuit against Kaplan Higher Education Corporation, alleging that the company violated the Civil Rights Act by using credit History in making employment decisions. The EEOC alleged that Kaplan’s policy of considering credit history disproportionately harmed African American and Hispanic applicants.
Additionally, credit checks can also lead to accusations of discrimination. In some cases, certain protected groups may be disproportionately impacted by a negative credit history. For example, one study found that African Americans and Hispanics were more likely to have lower credit scores than Caucasians. As a result, if an employer denies employment to an applicant based on their credit score, there is a risk that the applicant could allege discrimination.
Finally, checking credit can also be time-consuming and expensive for employers. Employers must pay for each credit check, and the process of conducting the check can take up valuable time that could be spent on interviewing and hiring candidates.
Alternatives to Checking Credit
An employer may check an applicant’s credit as part of the background screening process. The main reasons employers check credit are to verify the applicant’s identity, to assess their financial responsibility, and to determine their character. However, there are some alternatives to checking credit.
What are some alternatives to checking credit?
There are a few different ways that employers can evaluate job applicants without relying on credit scores. These methods may be more time-consuming and expensive for the employer, but they can provide a more accurate picture of an applicant’s qualifications.
One alternative is to conduct in-person interviews with all candidates. This gives the employer a chance to ask questions and get to know the applicant in person. Another alternative is to require candidates to submit references from previous employers or other professionals who can vouch for their character and work ethic.
Another possibility is to run background checks that focus on criminal records rather than credit scores. This can help employers weed out applicants with serious red flags in their past, without unfairly penalizing those who have minor financial troubles.
Ultimately, the best way to evaluate job applicants may vary depending on the position and the company. Employers should carefully consider all of their options before making a decision about whether or not to check credit scores.
How can employers use these alternatives?
There are a few different ways that employers can check credit without using a credit report. One way is to check public records. This can include things like bankruptcies, foreclosures, or judgments. Another way is to check with references. This can give employers an idea of an applicant’s financial responsibility. Finally, employers can also run a background check. This can include things like criminal history or employment history.