Credit checks have begun to replace employer references as a way for hiring managers to investigate candidate suitability. Employers who use them pay extra to get your credit score, but they do see payment history, debt load, bankruptcies and liens. Although their accuracy and ability to predict behavior remain a debated topic, credit checks serve five key purposes for employers.
5 Legal Requirement
Employers may check credit scores to comply with legislation requiring them to conduct background investigations that include a credit check. For example, Title 5 Code of Federal Regulations Part 731 (5 CFR 731) and several executive orders require federal agencies to do background and credit checks on employees and government contractors. Brokers must report any personal bankruptcies to comply with Financial Industry Regulatory Authority regulations. Credit checks allow employers to confirm their reports.
4 Assess Suitability
Some employers find a correlation between personal finance management and job performance. Others view high personal debt and payment delinquencies as distractions that negatively affect on-the-job productivity. Credit reports give employers insight into an applicant’s judgment and possible acceptance of job responsibilities. Financial services employers want to confirm that prospective employees do not have bankruptcy or credit scars that could mar their reputation.
3 Avoid Data Breaches
In these days of identity theft, safeguarding sensitive information about clients, customers and employees has become a primary business concern. Filling positions that have access to account numbers or confidential information such as employee benefits, personal data and salaries requires organizations to know whom they hire. They rely on credit checks as a tool to avoid negligent hiring allegations.
2 Confirm Resume and Application Information
Credit reports contain useful identifiers that employers can use to verify an applicant’s self-portrayal. Social Security numbers, employment histories, names and addresses found on credit reports can reveal resume contradictions. Done in conjunction with a background check, a credit report can reveal employment gaps not included in the resume.
1 Predicting Fraud Risk
Candidates for jobs that manage an organization’s financial resources or involve handling cash should expect to have their personal finances investigated by employers. Nearly half—45 percent—of employers surveyed by the Society for Human Resource Management listed embezzlement and theft prevention as the top reason for using credit checks in the hiring process. The Association of Certified Fraud Examiners has found that those who commit fraud share one of two characteristics: they live beyond their means or they’re struggling financially.