Employment Credit Report: What You Need to Know

employment credit report

As an employer or hiring manager, it’s important to ensure that the people you hire are trustworthy and honest – especially if they will have access to your company’s finances or sensitive customer information.

One way to screen prospective candidates for such positions is to conduct pre-employment credit checks.

An employment credit report can help you see whether an applicant has handled his or her finances responsibly and help you prevent potential losses from employee theft or fraud.

Did you know that 33% of embezzlers work in their companies’ finance or accounting departments?

Based on our experience conducting all types of employment background checks for employers across the U.S., we have written this guide for employers to use when conducting pre-employment credit checks.

Let’s get started.

What is an Employment Credit Report?

An employment credit report is one of several different types of background check reports that some employers perform on applicants, typically as the final step in the hiring process.

This type of report provides employers with information about an applicant’s debt-to-income ratio, payment history, and other details that can help them to evaluate the applicant’s financial responsibility, the potential for committing fraud because of financial distress, and any indicators of financial mismanagement.

Most employers request other types of employment background check reports as well, including criminal background checks for employment, education verification, and employment verification.

Why do Employers Check Credit?

A consumer credit report for employment purposes provides a snapshot of a prospective employee’s financial history, including their payment history and other relevant information.

There are a few reasons why an employer might perform a pre-employment credit check on a job candidate, including the following:

  • When doing so is required by law
  • Gauge an applicant’s ability to manage money
  • Evaluate the trustworthiness of an applicant
  • Flag potential issues

For example, when an applicant’s credit history reveals a history of making late payments, this could indicate the applicant is not financially responsible.

Excessive levels of debt could indicate the potential for fraud or theft due to financial distress.

Credit checks are more commonly requested in the financial industry, including banks, investment firms, and others. They are also required by government agencies or companies offering jobs that require security clearances.

What is Included in an Employment Credit Report?

The report will show the applicants’ payment history, available credit, and debt balances.

However, it will not include information that could violate other employment laws, including the applicant’s marital status, account numbers, credit score, or birth year.

Federal, State and Local Employment Credit Check Laws

Employers that want to conduct pre-employment credit checks must understand and follow the federal, state, and local laws that apply.

Failing to follow these laws could result in substantial penalties, fines, and result in lawsuits.

Some of the most important laws are described below.

Federal Employment Credit Check Laws

Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act is a federal law that protects consumers’ privacy in the information that consumer reporting agencies collect and report. The FCRA also establishes standards for all types of employment background checks, including credit checks for employment.

CRAs that collect and report credit information to potential employers must follow the FCRA’s time restrictions on how far back their background checks can go.

The FCRA has a seven-year restriction on background information for jobs paying under $75,000 per year for the following types of information:

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

Before you can request a pre-employment credit check, you must first let the applicant know that you intend to request it and get his or her signed permission.

If the report reveals adverse information, you must inform the applicant and complete the adverse action process before making a final decision not to hire the candidate.

Employers must provide the third-party company’s contact information to the applicants, and when the employers decide not to hire the applicants based on information contained in the reports, the applicants have a right to get a free copy of the report and dispute the information.

Title VII of the Civil Rights Act of 1964

Title VII of the Civil Rights Act is a major federal anti-discrimination law that prohibits employment discrimination based on the protected characteristics of applicants and employees. This law is enforced by the Equal Employment Opportunity Commission.

Employers cannot discriminate against applicants when they use their credit reports to make employment decisions.

For example, employers are not allowed to only require members of a certain race to undergo credit checks when they do not require applicants of other races for the same positions.

State Employment Credit Check Laws

While many states allow employers to use credit reports to make employment decisions, a growing number of states have enacted laws restricting how credit information can be used.

What states ban credit checks for employment?

Ten states have laws restricting the use of credit reports for employment decisions, including the following:

While the restrictions in these states vary, they restrict the use of credit checks by employers in specific occupations or for positions that deal with confidential information or financial transactions.

Local Laws

Several cities have local laws that restrict the use of credit reports, including New York City, Philadelphia, and Chicago. You can check to see if your city has enacted a similar law by reviewing its ordinances.

Chicago’s Ban on Credit History Discrimination

Chicago amended its Human Rights Ordinance in 2012 to ban credit history discrimination in employment.

Under this law, employers cannot request credit history information or reports from applicants or employees or use that type of information when making employment decisions or as part of an Illinois background check

However, the following types of jobs are exempt from this law:

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

NYC Stop Credit Discrimination in Employment Act

In New York City, the Stop Credit Discrimination in Employment Act bans most employers from performing credit checks. However, there are several exceptions, including performing credit checks for potential law enforcement officers and checks for executive-level positions carrying fiduciary duties.

For more information about conducting employment background checks in New York, please click here.

Philadelphia’s Amendment to the Fair Practices Act

In Jan. 2021, Philadelphia amended its Fair Practices Act, which already banned the use of credit reports for most employers.

However, the prior law allowed exemptions for law enforcement agencies and financial institutions.

Under the amendment, law enforcement agencies and financial institutions may no longer rely on credit reports to make adverse decisions unless one of the following exceptions applies:

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

For more information on how to conduct background checks for employment in Philadelphia, click here.

How do I Run a Credit Report for Employment?

You can request a credit check for employment through TransUnion or Experian and submit the required fee per report.

However, requesting credit history checks through these agencies will not provide other important information about an applicant’s background, including criminal history, education verification, employment verification, and others.

Some employers try to cobble background check reports together by trying do-it-yourself approaches. They might submit requests to TransUnion or Experian, multiple other state agencies, and perform searches online for their prospective candidates.

Trying this method can return inaccurate and incomplete information that might not comply with the FCRA and other laws.

The best approach is to partner with a reputable third-party company that performs comprehensive employment background checks like iprospectcheck.

We perform comprehensive background checks for employers that always comply with the requirements of the FCRA and other employment laws.

We also offer a large variety of background check reports and clinical services, including credit background checks for employment, education verification, criminal history checks, employment verification, and drug testing, among others.

Because of our access to numerous reliable databases and our advanced research methods, we can quickly return reports to our clients in as little as a few hours.

How to Stay Compliant During the Process

Is it legal to check credit for employment? Depending on your state, industry, and position for which you are hiring, it is generally legal for employers to check the credit histories of their employees.

However, some states and localities restrict the use of credit information, so you will need to check with your state and city to learn about the laws in your area.

When you perform credit checks for employment, you must also ensure that you comply with both the FCRA and Title VII. Follow the tips below to remain compliant.

1. Notify Applicants and Get Written Authorization.

Before you perform credit checks on your applicants, you must notify them of your intent in writing and secure their written permission. Make sure the notice is in clear, conspicuous language.

2. Send Pre-Adverse Action Notices.

If something in an applicant’s credit report makes you want to reject his or her application, you must send a pre-adverse action notice before making a final decision. You should include a copy of the report and a summary of the applicant’s rights.

3. Provide Reasonable Time for the Applicant to Respond.

Once you send a pre-adverse action notice, you must give the applicant a reasonable time to respond.

This is generally considered to be three to five business days. The applicant will then have the opportunity to explain the negative information or correct it with the reporting company.

4. Send Final Adverse Action Notices

If you decide against hiring an applicant after completing the adverse action process, you must send him or her a final adverse action notice.

This notice should include the name and contact information of the CRA that conducted the credit check, a statement that the CRA did not make the decision not to hire the applicant, and an explanation of the applicant’s right to get a free copy of the credit report within 60 days.

Does an Employer Credit Check Affect Your Score?

When employers perform credit checks on applicants or employees, the checks are counted as soft inquiries. This means that they do not affect your credit score in the same way that applying for credit might.

Other employers also will not be able to see that a soft inquiry was performed on your credit. This means that if you apply for several jobs, the prospective employers will not be able to see which companies have checked your credit.

However, you will see the soft inquiries that have been made if you request a personal copy of your credit report.

Can My Credit Prevent Me from Getting a Job?

Depending on the type of job you are applying for, having a problematic credit history can potentially prevent you from getting hired.

It is a good idea for you to prepare by requesting your credit reports in advance of applying for positions requiring you to handle sensitive information or money or that require security clearances.

Doing so can allow you time to challenge any inaccurate information before you apply for a job.

iprospectcheck: Your Trusted Partner for Fast, Accurate, Compliant Employment Credit Check Services

Pre-employment credit reports can be useful for employers hiring for positions that involve significant access to money, confidential information, or security clearances.

However, you will want to ensure that you comply with all relevant laws when conducting credit checks for employment.

When you work with iprospectcheck, you can benefit from our vast resources and advanced research methods. We quickly return credit checks and other types of employment background reports to our clients quickly, and we always comply with the FCRA and other relevant laws.

To learn more about the services we provide, contact iprospectcheck today for a free quote: (888) 808-9997

DISCLAIMER: The resources provided here are for educational purposes only and do not constitute legal advice. Consult your counsel if you have legal questions related to your specific practices and compliance with applicable laws.

Know Before You Hire

About the Author
Matthew J. Rodgers

Matthew J. Rodgers

Matthew J. Rodgers is a highly accomplished business executive with over 30 years of experience providing strategic vision and leadership to companies ranging from the fortune 500 to iprospectcheck, a company which he co-founded over a decade ago. Matthew is a valued consultant who is dedicated to helping companies create and implement efficient, cost effective and compliant employment screening programs. Matt has been a member of the Professional Background Screeners Association since 2009 . When not focused on iprospectcheck, he can be found spending time with his family, fly fishing, or occasionally running the wild rivers of the American west. A lifetime member of American Whitewater, Matt is passionate about protecting and restoring America’s whitewater rivers.