Employment background checks, especially credit checks, have begun to replace employer references as a way for hiring managers to investigate candidate suitability.
Employers who use background checks pay extra to get your credit score, but they do so to see payment history, debt load, bankruptcies and liens. Although their accuracy and ability to predict behavior remain a debated topic, background and credit checks serve five key purposes for employers.
Here are five purposes employers carry out employment background check:
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.
However, getting access is not that easy, because access to your credit report is governed by the Fair Credit Reporting Act (FCRA), which sets the limitations on when and who can get access to your credit information. The FCRA sets a few restrictions specifically on employers who are using credit reports to screen new job applicants.
First, before checking your credit report, the employer must seek your permission. This implies that without your consent, there will be no access to your information.
Before you decide not to grant permission, it will be best to consider what your refusal would imply to a possible employer.
Also, if the potential employer decides against hiring you based on your credit report, the employer must provide you a copy of the report for you to review yourself before making any decision or even denying you the employment opportunity. This measure gives the applicant a chance to address and correct those errors.
READ MORE: What does a background check show?
4.) Assess Suitability
Some employers while doing their employment background check find a correlation between personal finance management and job performance, with your credit report containing things like how much money you owe, whether you meet your regular payments, whether you’ve applied for credit recently, and so on.
It gives employers some information to help decide whether you are suitable for the job, although they might not have access to all of the information listed in the credit report.
Some employers while carrying out employment background checks 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.
“Foreclosures, multiple bank account closings or liens against the job candidate could be interpreted as signs of irresponsibility and negligence,” says Peter Yang, cofounder of ResumeGo, a company that offers career coaching and résumé-writing services.
An employer might interpret major money problems at home to mean you lack the decision-making skills and judgment to excel in your job.
3.) Data Breach
With identity theft on the rise, 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 who they’re hiring.
They rely on credit checks as a tool to avoid negligent hiring allegations.
“Generally, employers want to look at your credit as a safety measure, and as proof that they tried to find out as much as possible about your background before they hired you,” says Jeff White, financial analyst and staff writer for Fit Small Business, a site that provides financial advice to small businesses. White explains that if you have a history of mismanaging money in your credit report and then mismanage the company’s money, the company could be sued for negligent hiring by shareholders.
2.) Confirm Résumé and Application Information
Employment background checks will also make sure the applicant in question has the degrees and professional certifications they claim they do. Sometimes, learning this information can be about confirming honesty; other times, when certain degrees or certifications are actually legally required for a person to perform a job, they are about abiding by the law.
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 résumé contradictions. Done in conjunction with a background check, a credit report can reveal employment gaps not included in the résumé.
Barry Maher, author of Filling the Glass, adds that a credit report can provide a snapshot of a person’s economic life that may confirm or contradict the résumé.
“Perhaps someone claims they made a good six-figure income for the last 10 years, yet they show repeated credit problems during that period. Are they lying about their income? Are they poor money managers? Do they have a major financial issue that’s draining their resources? Any of these might (or might not) have a negative effect on their job.”
1.) Predicting Fraud Risk
The primary reason most employers run pre-employment background checks is to flag any criminal convictions in an applicant’s past. Sometimes, these criminal charges mean someone is dangerous, unreliable, untrustworthy or otherwise unsuitable for hiring.
Other times, the charges are minor, out of date or irrelevant to the job at hand.
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.
Employers have an obligation under OSHA to provide a safe workplace—one that is free of known hazards. As such, many employers opt to perform at least a criminal background check on potential employees before finalizing any offer of employment.