This article will help you:
- Understand how an Employment Credit Check differs from a common Credit Report
- Understand the credentialing process for an Employment Credit Check
- Make sure that your Credit Checks are compliant and job-relevant
An Employment Credit Check differs from regular credit checks and reports in that an Employment Credit Check is designed to give businesses the information they need to help them make hiring decisions. Information on the report may include public information, such as tax liens, accounts in collections, and bankruptcies. Employment Credit Checks will also show account information, including how much is owed, and high/low credit and payment history on each account.
Employment Credit Checks are legal under the FCRA. There are several rules set in place by the FCRA when conducting a credit check and there are some state restrictions as well.
Credit reports may be conducted on potential employees who will have financial or fiduciary responsibility for the company. Employers must state their “permissible purpose” when running credit reports, and several states have very specific requirements which must be met to establish the right to conduct credit reports. Employment credit reports will not impact or reveal credit scores and account numbers.
Consumer Reporting Agencies (CRA) like Checkr provide employment Credit Checks, which differ from credit checks for other purposes such as an annual credit reports, obtaining loans, or assessing credit scores. Differences include:
- Employment Credit Checks do not contain a scoring system, such as a FICO score
- Employment Credit Checks do not display individual account numbers of loans or revolving credit cards
- Employment Credit Checks do not affect a person's credit score (neither a hard nor soft hit), as they are not seen as an inquiry by a financial institution to establish an account
Credentialing for Employment Credit Checks
Before Checkr clients can order Credit Checks for employment purposes, they must go through an onsite inspection performed by a third party. As part of this process:
- The third party will inspect the offices of the customer where credit reports will be ordered and reviewed.
- The customer must state their intended business purpose for conducting credit reports.
To comply with the Fair Credit Reporting Act and similar state laws, an employment credit report must have job-relevance: the role should have fiduciary responsibility. An easy way to test whether a Credit Check is compliant is to ask, “Will this person handle or manage customer/company funds?” If not, a Credit Check should not be ordered.
Several states have specific permissible reasons that employers must choose when ordering credit reports. See our article on state-specific permissibility for partial list of those states, but you should consult with your legal counsel to determine whether Credit Checks are permissible based on the job role and state.
When assessing a background report, treat the results of a Credit Check with extreme care. The Equal Employment Opportunity Commission (EEOC) requires employers not to automatically take adverse action on credit reports. This requirement stems from research showing that automatic denial of candidates based on Credit Checks and criminal records has a disparate impact: in other words, it disproportionately affects protected groups by denying them employment.
For these reasons, Checkr does not provide an automated Adverse Action flow through the Checkr Dashboard.