Employment Credit Check

Definition

The term employment credit check refers to a report used by employers to verify the financial and identity information received from job applicants.  While employment credit checks are typically used during the hiring process, they can also be used when making a decision to promote or retain an employee.

Explanation

As part of their hiring process, employers may perform a number of background checks.  Also known as an employee credit check, this information is used to gain an understanding of a job applicant's financial health, integrity, and responsibility.  It's also used to verify information provided on job applications.  Employers can obtain a report from any one of the three consumer credit agencies (TransUnion, Experian, Equifax).

The information contained in this report includes: other names used (maiden names, aliases), current and prior mailing addresses, Social Security numbers, debt (personal loans, mortgages, car and student loans), payment history, prior work history, in addition to public records such as judgments against the job applicant, bankruptcies and liens.

The Fair Credit Reporting Act (FCRA) outlines the consumer protections process that all employers performing a credit check must follow:

  • Written Consent:  before requesting a credit report, employers must notify job applicants and gain their written authorization.  This notice and consent agreement must be a stand-alone document and not a section of a job application.
  • Pre-Adverse Action Disclosure:  if an employer decides not to hire an applicant based on information contained in their credit report, they must first send the job applicant written notice of "adverse action."  Along with this notice, employers must also provide a copy of the credit report as well as the Federal Trade Commission's "A Summary of Your Rights Under the Fair Credit Reporting Act."  This document outlines the process for challenging incorrect information appearing on the report.
  • Adverse Action Notice:  once a final decision is made not to hire a job applicant based on information found in their credit report, employers must provide the applicant with an "adverse action notice."  This document informs the applicant they will not be hired, in addition to their right to dispute the accuracy of the information found in their report.  Credit reporting agencies are required to correct or remove inaccurate or unverifiable information within thirty days.

Note:  State laws may prohibit, or limit, an employer's use of credit reports when making hiring decisions.  If a state law provides stronger consumer protections than federal law, the state law must be followed.

Related Terms

applicant pool, pre-employment drug testing, employment background check, employment eligibilityemployment application, employee eligibility form