Pulling a Candidate's Credit Report

Credit checks can be a part of the applicant review process. But the practice is being used less as some states pass laws prohibiting the use of credit checks in the hiring process and studies reveal it may not be beneficial.
If you’re filling a financial position, like a bookkeeper, or an executive-level job with financial responsibilities or access to confidential employee information, a credit check may be appropriate, but only after you’ve made the decision to hire. It’s generally not a good tool for screening applicants because it doesn’t reveal much about a candidate’s qualifications or experience.

Following the Fair Credit Reporting Act (FCRA)

If you decide to pull an applicant’s credit report, you must follow legal rules set out by the FCRA, which requires you to:
  • Get the applicant's written consent; your request for consent must be in a separate document that does not include other information related to the job
  • Give the applicant a notice (along with a copy of the report you reviewed and information on how to challenge the report’s data) if you plan to reject the applicant on the basis of the report, and
  • Provide the applicant with an official adverse action notice if you do not hire due to the contents of the report.

What to Look for in the Credit File

Unlike a lender, you aren’t looking for FICO or other credit scores. You’re more interested in credit and financial history going back five to seven years, including trends in employment, insurance, and legal activities. A late payment here and there is not as concerning as a foreclosure, or legal actions, or multiple bankruptcies that might indicate a pattern of making poor financial decisions. Unusually large outstanding debts that could be hard to pay off based on the salary you are offering may also be a red flag.

Game Plan

  • Even though the federal FCRA allows employers to consider credit reports, state laws that are more protective of employee rights may trump the FCRA. A number of states have passed laws prohibiting employers from pulling credit reports or limiting how employers may use them to make hiring or other job decisions. For a state-by-state review of legislation related to employment credit information, visit the National Conference of State Legislatures. This information was last updated in December, 2011. For the most up-to-date information, contact your state department of labor.
  • Read more about using credit checks in the hiring process.
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