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It’s not uncommon for people applying for credit, a mortgage or other kinds of financing to require some form of credit check. A credit check is an analysis of a person’s financial history, looking at how they have managed personal credit and debt, such as loan repayments, bill payments, and any credit defaults. A credit report is compiled from this information, detailing this personal financial history as well as awarding an overall credit score, reflecting how well the person being checked has handled their finances, paid bills and dealt with debt.
Although not common, some employers may require a credit check during the hiring process to see a candidate’s financial history and how they have handled their debt. These checks are typically conducted in conjunction with reference checks, employment background checks and criminal background checks to verify a potential employee’s suitability for a role.
Examples of employers or positions that may require this type of information include
Credit checks typically score a person's credit between zero and 1000 or 1200, depending on the institution performing the check.
A Pre-employment Credit Check is much like a standard credit check that any financial institution may require before approving a person for a loan, mortgage or credit card. A credit check is a report on a person’s financial history and behaviours. This includes information such as whether bills have been paid on time, or whether credit card or loan repayments have been made regularly.
These checks are performed by third-party consumer credit agencies, such as Experian or Equifax.
Regardless of location, a credit check will likely search for the following information:
When viewed by a potential employer, a credit check may indicate whether an applicant is capable of adequately handling cash flow, managing finances or is a possible risk for fraud.
Unlike a personal credit report, a Pre-employment Credit Check may omit information that may violate equal employment opportunity regulations, such as marital status or age. Checks by employers will also not contain confidential information, such as account numbers.
Positions within the financial sector or those with access to privileged information are most likely to require a Pre-employment Credit Check. This is especially true for positions that require money management or direct access to money, such as bank tellers, payroll clerks and financial advisors.
Outside the financial sector, roles that have direct access to or involvement with managing money, such as payroll or invoice reconciliation, may also require a credit check during the hiring process.
In the UK, it is a legal requirement for solicitors and law firms to have an Employee Credit Check.
Yes. A Pre-employment Credit Check can not be performed without the express consent of the person being checked. At least 10 US states have made Pre-Employment Credit Checks illegal, and a number of other states are currently considering similar legislation.
Employers should also seriously consider whether the check is absolutely necessary before asking for permission. Pre-employment Credit Checks are very personal in nature, so may be impacted by privacy laws. .
There are no set guidelines as to which professions or roles require a Pre-employment Credit Check. If a position doesn’t involve the direct handling of money or strong influence over a business or a third party’s cash flow, then such a check is likely unnecessary.
If a credit check is a requirement for a job, it is often a non-negotiable part of the hiring process. That said, if a candidate feels as though the check is inappropriate for the position, the candidate can refuse to give permission. A Pre-employement Credit Check applied inappropriately could result in potential legal issues.
A negative credit report may be considered discriminatory if it impacts employment prospects and isn’t relevant to the situation. If a potential candidate’s financial past isn’t specifically relevant to the role, then it may not be necessary.
After permission has been granted to perform a Pre-employment Credit Check, the process for conducting the check is simple.
Depending on which country the credit check is being performed in, an employer may have to gather extra details about an applicant than you would otherwise. These details may include a Social Security number, Tax File number or a number of previous addresses. This helps consumer credit agencies verify they are collating data on the right person.
Once the information has been gathered, the employer then contacts a third-party consumer credit agency such as Experian or Equifax, who will then compile a report.
When the report is completed it is delivered to the employer. If there are any red flags or questions raised in the report, the candidate will likely be contacted for an explanation.
According to Checkr, a Pre-employment Credit Check may take up to 14 days to be completed.
The finished report will show the applicant’s credit score, along with relevant credit histories or credit information that has impacted the score. These factors include late payment of bills, service disconnections due to defaulted payments, overdrawn credit cards or poor loan repayments.
Depending on the consumer credit reporting body being used, the credit score may vary a little. Generally, a good credit score is considered anything above 625 (Experian), 661 (Equifax) or 500 (Illion). The average Australian credit score is 695.6 and the average U.S. score is 698. The higher the score, the better the applicant has handled their finances.
While an unfavourable Pre-employment Credit Check won’t necessarily exclude a person from a position, an employer may see the results of a check as a red flag. One of the key motivations for employees to engage in fraudulent activity or have otherwise misused funds is financial pressure. In addition, poor credit, badly managed debt or erratic payment schedules for bills may serve as an indicator to an employer that a candidate has poor organisational skills.
While a Pre-employment Credit Check is situational, employers may choose or be required by law to conduct a range of pre-employment checks including
Pre-employment Credit Checks are highly situational but may be necessary when it comes to due diligence on candidates for positions involving the handling of money or other financial matters. Reports are confidential and don’t contain any private information, but it’s essential that you get consent from the candidate before conducting a Pre-employment Credit Check.