How To Carry Out A Pre-Employment Credit Check: See Guide Here

It is important that recruitment agencies, managers of organisations and the human resource departments of an organisation that are charged with the responsibility of hiring new employees should hire people that are trustworthy and honest. All the employees that should be employed to have access to your company’s finances or sensitive customer information must be honest and trustworthy. This article will show you how to carry out a pre-employment credit check and the guide to follow. Conducting a pre-employment credit check is one of the ways to screen prospective candidates for sensitive positions in an organization.

A pre-employment credit check is an avenue an employer can use to check if an applicant has handled his or her finances responsibly to avoid potential loss from employees through fraud and theft.

What Is Pre-employment Credit Check?

A pre-employment credit check is the type of check conducted on potential employees by employers to have an insight into how they (potential candidates) have handled and managed their credit and debit payments in the past. As stated earlier, this kind of check is very necessary for sensitive positions and for employees that will be managing the organisation’s finances.

List Of Information That May Appear On A Pre-employment Credit Check

There is some information that must be enquired about in a pre-employment credit check. The following are the types of information that can be seen in a pre-employment check.

  • Available Credit.
  • Bankruptcies (if applicable).
  • Collection accounts for unpaid bills (if applicable).
  • Current and former employers’ names and addresses.
  • Debt-to-income ratio.
  • Other credit inquiries were made to an applicant.
  • Other indicators of financial mismanagement could indicate financial distress and/or the potential for fraud.

Although employers are trying to get some sensitive information for their potential employees, they should also take precautions not to include the following like information that could violate other employment laws, account numbers, year of birth, credit scores and marital status.

Reasons For Pre-employment Credit Check

It helps to provide a summary of a prospective employer’s financial history. The following are some of the reasons why an employer may need to perform a pre-employment credit check on a canditate that is looking for a job in their organisation.

  • A pre-employment credit check may be performed when it is required by the law to do so.
  • It can be carried out when it is used to identify issues.
  • It can be used to determine an applicant’s ability to manage money.
  • A pre-employment credit check can be used to evaluate the trustworthiness of an applicant.

If an applicant’s credit history reveals a history of making late payments, this could indicate that the applicant is not financially responsible. It is the financial industry like banks, investment firms etc that mostly request credit checks on their potential employees. Government agencies and companies that offer jobs that require security clearance also request that credit checks should be consulted.

Other Types Of Pre-employment Check

There are so many employment background checks that exist. Some of them include :

  • Criminal background check for employment.
  • Employment verification check.
  • Education verification check
  • Identity and address verification.
  • Credit history
  • The gap in educational history.

How To Carry Out A Pre-Employment Credit Check

There are approaches you can use to carry out a pre-employment credit check. In this section of this article, we are going to be looking at how to carry out pre-employment credit checks. Let’s proceed.

How To Get A Pre-employment Credit Check

Are you asking how to use to carry out a pre-employment credit check? There are two primary ways to complete a pre-employment credit check, There is a do-it-yourself approach or you can partner with a reliable background check company like iprospectcheck. The following are the processes to get a pre-employment credit check.

Do It Yourself

This is the method that some employers use for conducting their pre-employment credit checks. They use do-it-yourself by submitting requests to Experian and Transunion attaching their required report fees. Some employers can go as far as submitting requests to several state agencies and searching online for information about a candidate’s financial history.

Although this approach is good, it will not provide employers with critical background information about an applicant. The information it may not provide includes employment history, criminal history education history etc. Using do it yourself credit check may equally give you inaccurate or incomplete information that might violate the FCRA (Fair Credit Reporting Act) and other relevant background check laws, which may in the future expose your company to liability.

Read Also: Pre-employment Credit Checks- 5 Things You Need To Know

Partner With A Reliable Provider

This is another aspect of how to carry out a pre-employment credit check. This involves partnering with a reliable background check provider. Ome of such check provider is iprospectcheck. They provide comprehensive employment background checks and stay up to date with the changes that may occur to the FCRA and other relevant laws. The reports are fully FRCA -compliant thereby helping you to avoid liabilities that may occur in the future.

Apart from pre-employment checks, they also conduct other checks like clinical services, employment screening, criminal background checks, employment verification, drug testing, education verification, and credit background checks for employment. etc. They can quickly return full background check reports because they have large considerable access to reliable information sources and the advanced research methods they use.

How To Stay Compliant During The Process Of Pre-employment Credit Check

Staying compliant with the relevant laws is one of the steps how to carry out a pre-employment credit check. It is generally acceptable and legal for employers to perform checks on the credit histories of their employees, But there are still some states that restrict the use of credit information. So you need to first check your state and city laws to know if it is acceptable or not so that you are guided by the laws in your area. After complying with the laws obtainable within your area, you must also ensure that you comply with the FCRA and Title VII. The following are the tips you can follow to remain compliant.

Notify Applicants And Get Written Authorization

How to carry out a pre-employment credit check is that before you start performing the credit checks on your applicants, your must first notify them of your intentions in writing and also get their permission to go ahead in writing. Ensure that the letter seeking permission is written in the clear and visible language.

Send Pre-Adverse Action Notices

In case you as an employer finds out something about the employee during your check that will make you reject the applicant’s application, it is an ideal thing to send a pre-adverse action message or notice to the applicant before taking your final decision. You must remember to include a copy of the report and also a summary of the applicant’s rights.

Give Reasonable Time For The Applicant To Respond

After you have sent a pre-adverse action notice in writing to the applicant, you must give him or her a reasonable time to respond to the notice. This is how to carry out a pre-employment credit check that is generally considered to be three to five business days. With the time given, the applicant will use the opportunity to explain the negative information or correct it with the reporting company.

Send Final Adverse Action Notices

sending a final adverse action notice is among the steps on how to carry out a pre-employment credit check on potential employees. If the employer has decided to hire an applicant after completing the adverse action process, you must ensure you send him or her a final adverse action notice.

The content of the notice should include the name and contact information of the CRS that conducted the credit check. Include also a statement that the CRA did not in any way take part in the decision process to determine whether to hire or not to hire the applicant. Notify the applicant that he or she has the right to get a free copy of the credit report within sixty (60) days.

Federal, State And Local Employment Credit Check Laws

When thinking of how to carry out a pre-employment credit check, employers should know that they are laws that apply. When an employer wants to conduct a pre-employment credit check, they should understand the Federal, State and local laws that apply o their activities. Not complying with the rules of these laws could result in substantial penalties, and fines and can result in lawsuits. We will take a look at some of the important laws below:

Federal Employment Credit Check Laws

These are some of the laws that are at the federal level. they include:

Fair Credit Reporting Act (FCRA)

This is one of the federal laws that protect consumers’ privacy in the information that consumer reporting agencies collect and report. The responsibility of establishing the standards for all types of employment background checks and credit checks for employment rests on the FCRA. The CRA’s responsibility, on the other hand, is to collect and report credit information to potential employers which they must follow. The FCRA’s time restrictions on how far back their background check can go.

There is a restriction of even (7) years placed on FCRA’on background information for jobs paying under $75,000 per year for the following types of information.

  • Arrests not resulting in convictions
  • Bankruptcies
  • Lawsuits
  • Liens
  • Negative credit information

Title VII Of The Civil Rights Act Of 1964

This is one of the major federal anti-discrimination laws. it prevents employment discrimination based on the protected characteristics of applicants and employees. The Title VII of the Civil Rights Act is enforced by the Equal Employment Opportunity Commission.

This law makes it difficult for employers to discriminate against applicants when they use their credit reports to make employment decisions. Because of this law, employers are not allowed to subject members of a certain race to undergo credit checks and do not require applicants from other races for the same positions.

State Employment Credit Check Laws

Some states allow employers to use credit reports to make employment decisions, many other states have laws that restrict how credit information can be used.

The List Of States That Prohibits The Conduct Of Pre-employment Credit Checks

The ten states listed below have laws restricting them from the use of pre-employment credit checks for employment decisions.

  • California – Cal. Labor Code § 1024.5 et seq.
  • Colorado – § 8-2-126, C.R.S.
  • Connecticut – Conn. Pub. Act No. 11-223
  • Hawaii – Haw. Rev. Stat. §§ 378-2.7, 378-2(8)
  • Illinois – 820 Ill. Comp. Stat. §§ 70/1 to 70/30
  • Maryland – Md. Code Ann., Labor & Empl. Law § 3-711
  • Nevada – NRS § 613.570
  • Oregon – Ore. Rev. Stat. § 659A.320
  • Washington – Wash. Rev. Code § 19.182.020
  • Vermont – Vermont Act No. 154

Although the restrictions in these states vary, all the states stated above prohibit the use of pre-employment credit checks in some specific occupations and positions that deals with confidential information or financial transactions.

Local Employment Credit Check Laws

So many cities in the USA have local laws that restrict the use of credit reports. Some of the cities include Chicago, New York City and Philadelphia. When you are thinking of how to carry out a pre-employment credit check on your potential employees, you have to check if your city has enacted a similar law by reviewing its ordinances.

Chicago’s Ban On Credit History Discrimination

Chicago city amended its Human Rights Ordinances in 2012 to ban credit history discrimination in employment. With this law in place, employers do not have the right to request credit history, reports or information from applicants or employees. Employers are not even allowed to make employment decisions on who to employ or not using such information or as part of an Illinois background check.

List Of Types Of Jobs Exempted From This Law

The following is the list of types of jobs exempted from the local laws in Chicago. Ther are:

  • Banking jobs
  • Debt collection jobs
  • Insurance and surety jobs
  • Jobs for which credit checks are a bona fide occupational qualification
  • Jobs which are required to perform credit checks by other laws
  • Law enforcement and other investigative agencies

It means that employers that recruit for this group of jobs stated above know how to carry out a pre-employment credit check on their applicants or potential employees.

New York City Stop Credit Discrimination In Employment Act

This is an act that bans most employers from performing pre-employment credit checks. There are still some exemptions to this act and they include performing credit checks for potential law enforcement officers and executive-level positions with judiciary duties attached. You can visit their website to get more information about how to carry out a pre-employment credit check in New York.

Philadelphia’s Amendment To Their Fair Practices Act

Philadelphia amended its Fair Practice Act in 2021which already banned the use of pre-employment credit checks for most employers. But before the enactment and amendments, the law allowed exemptions for law enforcement agencies and financial Institutions.

Under the law amendment, law enforcement agencies and financial institutions may no longer rely on credit reports when making adverse employment decisions except one of the following conditions or situations applies:

  • Where State or federal laws are requiring their consideration.
  • Supervisory or management roles involve setting business policies or direction.
  • For Positions involving significant financial responsibility.
  • For Jobs requiring access to confidential customer information or confidential employer information.

For more enquiries or information on how to carry out a pre-employment credit check in Philadelphia, you can visit their website.

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