Employers Screening Credit Reports and Insights Gleaned
In the hiring process, employers may review a modified version of an applicant's credit report to gain insights into their financial history. This report includes credit accounts, payment history, debts, bankruptcies or liens, and certain work history.
The credit check functions as a kind of credit reference and is believed to provide key insights into a person's character. However, it's important to note that some states have limited the use of employer credit checks. Applicants can check with their state labor department or city government to learn whether employer credit checks are restricted in their area.
Employers may obtain an employer credit report from one of the three major credit reporting bureaus - Equifax, Experian, or TransUnion. If an employer intends to reject an applicant based on their credit report, it must tell them before the decision is made. The employer must notify the applicant if it intends to check their credit and must get their written permission.
The use of a credit check is primarily to protect the company's finances, workers, and customers. Late payments could indicate a lack of organization and responsibility or a failure to uphold agreements. Using large amounts of available credit or having excessive debt may be viewed as signs of financial distress, increasing the likelihood of theft or fraud.
Any evidence of mishandling personal finances could indicate a poor fit for a job that involves handling company money or consumer information. However, employers should not see irrelevant personal financial details or unrelated private information during a hiring credit check. The focus should be on validating key employment-related financial stability and compliance, avoiding disclosing sensitive data like non-job-related criminal records or unrelated private financial insolvency unless directly relevant to the job or legal requirements.
The Fair Credit Reporting Act (FCRA) grants job applicants certain rights. For instance, applicants are entitled to be informed if a credit check was used in the hiring decision and given the opportunity to dispute any inaccuracies in the report. If an employer intends to reject an applicant based on their credit report, it must send a pre-adverse action notice, including a copy of the report used and a summary of the applicant's rights. After acting, the employer must follow up with a post-adverse action notice, giving the name of the credit report agency, its contact information, and explaining the applicant's right to get a free copy of the report within 60 days.
Applicants are entitled to one free online credit report every week from each of the three major credit bureaus by using AnnualCreditReport.com. Some personal finance websites, such as NerdWallet, offer a free credit report and score that can be checked regularly. If an applicant has a credit freeze with the major credit bureaus and knows a potential employer is going to check their credit, it's a good idea to temporarily lift the credit freeze.
It's also worth noting that the credit check counts as a soft inquiry, which does not affect the applicant's credit score. Experts say it's best to use less than 30% of available credit on any card at any time.
In conclusion, employer credit checks can play a significant role in the hiring process, providing insights into an applicant's financial history and potential suitability for certain roles. However, it's crucial for job seekers to understand their rights and take steps to maintain their credit health.
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