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Credit Checks on Employees - A Good Idea? How to Perform Them


Nowadays, it is becoming more and more commonplace for employers to run credit checks on potential employees.

A credit check shows more than whether or not a person pays their bills on time. They also include previous addresses and employers, which can be useful in verifying previous jobs and dates. The credit check, also called an employment background check, provides information seen on a normal credit report, except for the date of birth and credit score.

Why Credit Checks?

There are several reasons for running credit checks on employees. One of these reasons is to check the employee's level of responsibility. Some employers feel that a valid way to check an employee's level of responsibility is via a credit check. While there are limitations as to what can and can't be accessed by a potential employer in a credit check, the credit check will generally show the credit score and whether the person has paid bills in a timely fashion or not. The absence of credit can also be a determining factor in whether or not a potential employee is offered a job.

However, this method of determining responsibility has proven controversial. Some feel that it is an unfair or inaccurate means, as certain factors such as divorce, unexpected medical bills, or downsizing may have placed a person in an unfavorable financial situation that did not necessarily indicate irresponsibility.

Another reason employers run credit checks is to verify employment history. A credit check shows previous employers and addresses, so it is an accurate means of verifying information provided on a resume or application.

How to Perform Them

In order for an employer to run a background check, certain laws require written permission from the potential employee. This must be a document separate from all other application documents. This document must also contain information stating that the employee may also request a copy of the report if he or she desires.

Should an employer decide not to hire a candidate based on information in the credit check, a lengthy process then takes place. The employer is required under federal law to inform the applicant of their decision via what is called a pre-adverse action disclosure, which is a copy of the report as well as a document that lists the applicant's rights in accordance with the Fair Credit Reporting Act.

Once the applicant has been given the pre-adverse action disclosure, he or she is then given an adverse action notice, which is required to contain the name and contact information of the credit reporting agency and a statement that the applicant has the right to dispute any information found in the report.

Are They a Good Idea?

Many people ultimately feel that a credit report alone is not an accurate means of determining a person's responsibility level. Their ability to pay their bills on time most likely has little effect on whether or not they can perform their job well.

However, a credit check is a useful tool in determining the accuracy of information on the application or resume regarding employment history and length of time. For this reason, a credit check may be a good idea.

Ultimately, the decision to run credit checks on applicants is entirely up to the employer. For high-tech companies or those who deal with sensitive materials, it may not be a bad idea. Employers should take into account that it is a fairly lengthy process and requires a significant amount of documentation.

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