All Articles Leadership What credit history can — and can’t — tell you about candidates

What credit history can — and can’t — tell you about candidates

3 min read


This guest post is by Theresa Preg, director of product management and business development for LexisNexis Risk Solutions.

Most people think of background screening as just a check on criminal history, but a thorough screening can also include a full credit report and credit payment records. While a candidate should not be penalized for a credit history that’s less than perfect, credit reports can give an employer valuable information in making a hiring decision. The rationale is that people with a large amount of debt or credit problems may be more likely to commit fraud or steal from the company, and employers need a way to measure the reliability of a potential new hire.
It can often be confusing to understand how to evaluate all of the information obtained in an employment credit report. This information includes credit activity, public record information, previous addresses, employment information and fraud warnings, as well as name and social security number verification.

When evaluating this information, it is important to keep in mind four key “best practices” that can help determine how to use the information, and how to factor in the findings when making an employment decision.

  • Determine the job-relatedness. Credit reports and credit history should only be used when evaluating a candidate for certain job categories. If the candidate in question has fiscal accountability such as an accountant or financial officer, credit history can give an employer insight on a candidate’s financial reliability. Employers frequently use credit history when screening individuals for an executive position or those with direct access to sensitive financial and personal information.
  • Set a standard of use. When evaluating credit history, it will be important to determine a uniform standard that defines unfavorable history objectively. For instance, per Chapter 11 of the U.S. bankruptcy code, bankruptcies should not be held against the candidate. Chapter 11 gives the debtor a fresh start as long as they are in compliance with fulfilling the reorganization plan for their debt. The Fair Credit Reporting Act also prohibits employers from taking medical debt into account when reviewing credit history.
  • Establish a consistent process. It’s important to determine how and when to use information provided by an employment credit report. While some employers prefer to conduct annual background screenings, some may only use the information during the hiring process. Employers may find it more beneficial to run a credit report history annually to note any significant changes over time. Others may just use the information to make an initial assessment about a candidate. Whatever the screening policy, it should be consistent for all potential and current employees.
  • Develop an exception process. Like everything else in life, there are always going to be exceptions. It will be important to determine what reasonable circumstances warrant an exception. For example, if a candidate had accumulated debt during a divorce, this would be taken into account. Other life events, such as expenses related to a catastrophic event or medical debt from an accident could be examples of a valid exception.

Candidates can feel uncomfortable with a potential employer checking credit history, but ultimately there is useful data for the employer. It is important for hiring managers to communicate to potential candidates why obtaining an employment credit report is necessary. The verification of this information is a crucial step in the hiring process and gives employers the information they need to make the right hiring decision.

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