Can An Employer Request Employee Credit Reports?

You’ve written and posted the job ads and are ready to interview candidates, or it’s time for annual reviews, terminations and promotions. Can you request credit reports for potential or current employees? Learn more about the legal guidelines surrounding employee credit checks.

Why Do Companies Perform Credit Checks?

Many employers perform credit checks as a way to verify an employee’s integrity. A credit check can also reduce potential liability that could come from negligent hiring practices.

When Can Companies Perform Employee Credit Checks?

Companies can check a potential employee’s credit as part of the hiring practice. After an employee is hired, a company can also perform a credit check before they renew the employee’s contract, give promotions or reassign employees to another position.

Most employers must follow the federal Fair Credit Reporting Act (FCRA). It outlines how employers can obtain and use credit information and stipulates that you must inform employees and get written permission before you can obtain credit report information.

Do All Companies Perform Employee Credit Checks?

While many companies can perform employee credit checks, it’s not mandatory. In fact, certain companies only perform credit checks on key positions such as those who handle sensitive financial information. Also, certain states ban the use of credit checks to determine employment status.

What Information is Included on an Employee Credit Report?

Employers obtain employee credit reports from numerous consumer and employment credit checking agencies. The report can contain a variety of personal information, including:

  • Social Security number

  • Birth year

  • Marital status, including spouse’s name

  • Current and previous addresses and employers

  • Credit card, loan and child support obligations, including payment history

  • Liens, judgments and bankruptcies

  • Identity of anyone who checked the credit report recently

Most employee credit reports will not contain a credit score.  

Can Employees be Fired Because of Their Credit Reports?

Currently, no federal laws and few states prohibit employment discrimination based on an employee’s credit report. You must follow FCRA if you fire someone based on their credit report. The law states that employers must:

  • Provide employees with a copy of the FCRA and their credit report before firing or eliminating the employee.

  • Provide terminated employees with the contact information of the credit reporting agency.

  • Keep all credit report information confidential and not store it in personnel files.

Employers must also follow the Federal Bankruptcy Act and other civil rights laws. You cannot fire someone based on a past bankruptcy or use credit report information as an excuse to fire someone based on their gender, race or age.

Before requesting an employee’s credit report, check state and anti-discrimination laws. These steps ensure you use credit information properly as you make staffing decisions for your company.
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