This article will help you:
- Understand how an Employment Credit Report differs from a common Credit Report
- Understand the credentialing process for an Employment Credit Report
- Make sure that your Credit Reports are compliant and job-relevant
An Employment Credit Report differs from regular credit checks and reports in that an Employment Credit Report 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 Reports will also show account information, including how much is owed, and high/low credit and payment history on each account.
Employment Credit Reports 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 Reports, which differ from credit checks for other purposes such as an annual credit reports, obtaining loans, or assessing credit scores. Differences include:
- Employment Credit Reports do not contain a scoring system, such as a FICO score
- Employment Credit Reports do not display individual account numbers of loans or revolving credit cards
- Employment Credit Reports 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 Reports
Before Checkr clients can order Credit Reports 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 Report is compliant is to ask, “Will this person handle or manage customer/company funds?” If not, a Credit Report should not be ordered.
When assessing a background report, treat the results of a Credit Report 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 Reports and criminal records has a disparate impact: in other words, it disproportionately affects protected groups by denying them employment.
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 Reports are permissible based on the job role and state.