Can Credit History Affect Hireability?

Employers often run credit checks on potential employees for various reasons, including assessing a candidate’s financial responsibility and trustworthiness, as an individual’s credit history can provide insight into their past financial behavior. This information can help employers make informed hiring decisions and mitigate potential risks.

They may also run this kind of check to verify a candidate’s identity or history. A background check often includes criminal records, public records, and credit history – but employers are legally required to obtain written permission and authorization beforehand. 

It’s important to note that employees have certain rights, and there are rules that employers must comply with when it comes to employment credit checks. If you use credit checks, make sure you are in compliance with all applicable rules.

Not every employer will include credit checks in their background checks, as this information is more relevant to some roles, like a Chief Financial Officer role, than others. If a role is expected to handle company money, lead teams, or make financial transactions, knowing that each candidate has a clean credit background is helpful.

Other industries where checking credit may be beneficial include law enforcement, government agencies, or roles that handle sensitive or confidential information, such as the legal field.

Credit checks, as a part of standard background screening, are also valuable as a fraud detection tool. Job scams and application fraud are real, so credit report checks help to verify that the person applying is actually who they say they are – an essential component for high-risk operations or work that requires a high level of security clearance

A credit check for employment typically includes a modified version of a credit check, called an employment report, that doesn’t include several sensitive pieces of personal information. 

What you’ll find on an employment credit check includes:

• Your payment history and credit accounts
• Identification and address information
• Past work history and other employment information
• Any public records such as liens or bankruptcies

Information you will NOT find includes:

• Credit score
• Income
• Race or ethnicity
• Political party
• Marital status
• Medical bills
• Religion

The goal of this check for employment is usually to gauge trustworthiness and responsibility, so things like credit score and income are irrelevant to employers.

Note that, for specific states, employer-run credit checks are restricted. If you operate in any of those states, you may not be allowed to check a candidate’s credit history and may have to rely on other screening measures. 

Some cities also have regulations that limit employer use of these checks, such as New York City, Chicago, and Washington, D.C.

Some cities and states only allow such checks for roles that grant confidential access, trade secrets to employees, or company expense accounts, for example. These occupations have much higher stakes if the wrong person gets hired, so the local or state governments grant special access to ensure such candidates are properly vetted before they could potentially fill the role.

If you’re looking to use credit checks as part of your pre-employment screening process, it’s important to make sure that you’re in compliance with all applicable laws and rules. 

A credit background check can uncover various concerns that may impact an individual’s hireability. After all, if you’re hiring a financial advisor with a history of late debt payments and foreclosure, you’ll likely see poorer performance than if you hired one with a glowing financial record.

While not immediately concerning to all, some considerable discoveries may include, but aren’t limited to:

Past employment

For employment history, most employers don’t rely on credit reports for accurate information as they’re known to be incorrect. This information is usually gathered by checking references. 

However, if you notice conflicting information about their employment history, it could raise a red flag worth considering. You can always ask a candidate to clear up information that doesn’t match.

Debt collection

If a loan hasn’t been paid in 180 days or more, creditors may charge off a loan and collect the debt themselves or sell it to collections. This activity on a potential hire’s pre-employment report could indicate financial distress, irresponsibility, and a potential risk to your business’ security.

Late debt payments

Being repeatedly late on debt payments may signal that a candidate has trouble budgeting and meeting critical deadlines, which may not bode well for the position you’re hiring for.

Liens and foreclosures

Liens and foreclosures could also be a red flag. You may want to reconsider hiring someone with several liens or foreclosures in their history.

Judgments and lawsuits from creditors

If a potential hire is sued for their debts, you’ll know when you read their report up to seven years after it happened.