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 process. After an employee is hired, a company can also perform a credit check before renewing the employee’s contract, giving promotions, or reassigning 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.
For help finding a provider of background or credit screening services, see Credit Reporting Services.
Do All Companies Perform Employee Credit Checks?
While many companies can perform employee credit checks, it is not mandatory. Certain employers only perform credit checks on key positions, such as those who handle sensitive financial information. Also, some states limit or ban the use of credit checks to determine employment status.
Before relying on credit reports in hiring or promotion decisions, check state and local rules and consider industry-specific risks; for example, employers serving financial institutions may want information on Insurance for Credit Unions and Banks.
What Information is Included on an Employee Credit Report?
Employers obtain employee credit reports from 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?
No federal law broadly prohibits employment action based on a credit report, though a few states restrict the practice. If you take adverse action based on a credit report, you must follow the FCRA.
The FCRA requires employers to:
- Provide employees with a copy of the FCRA notice 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 avoid storing it in personnel files.
Employers must also comply with the Federal Bankruptcy Act and applicable civil rights laws. You cannot fire someone solely because of a past bankruptcy, and you must not use credit report information as an excuse to discriminate based on gender, race, age, or other protected characteristics.
Before requesting an employee’s credit report, check state and anti-discrimination laws to ensure you use credit information properly when making staffing decisions for your company.
Frequently Asked Questions
Do employers need my permission to check my credit?
Yes. Under the FCRA, employers generally must inform you and get written permission before obtaining your credit report.
Which jobs commonly require a credit check?
Positions that handle cash, financial records, or sensitive financial information are more likely to require credit checks.
Will a credit check show my credit score?
Most employment credit reports do not include a credit score; they focus on credit history and public records.
What must an employer provide if they take adverse action based on my report?
An employer must give you a copy of the report, a notice of adverse action, and the contact information for the reporting agency so you can review or dispute the information.