How to Ensure the Proper Use of Credit Reports in Employment Screening

Employment credit reports offer valuable insights into an applicant’s reliability and responsibility. Most credit reports include information related to public record filings, such as bankruptcies and judgments, as well as account standings with creditors.  These credit reports allow employers to quickly verify facts and uncover additional clues that may prompt further research.

Verify Your State Hasn’t Illegalized Employment Credit Reports

Checking an applicant’s credit record is legally acceptable in most states. However, these states will likely establish guidelines and scrutinize the logic and context of the hiring decisions. Either way, always be prepared to legally defend the decisions related to credit reports used during your screening process. Some of the states that limit an employer’s use of credit reports for hiring decisions include Oregon, Hawaii, Nevada, Illinois, Vermont, Colorado, California, Maryland, Connecticut and Washington.

Understand the Concerns of Advocacy Groups

Advocacy groups are concerned that certain demographic groups who are subject to discrimination and economic hardships may have worse credit histories.  The Equal Employment Opportunity Commission (EEOC) has sometimes stated that certain uses and circumstances of credit checks may lead to discrimination. The easiest way to overcome these concerns is through following the typical HR practice of standardized policies and objective decisions. Companies should create a formal credit history check disclosure to pass out to job applicants that explains their rights and the need for verifiable information.

How to Justify Credit Report Checks

Companies must create and follow pre-employment screening policies that are approved by business attorneys. Document your rational in a written policy by categorizing and ranking jobs by their relevant risks. For example, a senior accountant and a front-line cashier both deal with money, so this validates the need for screening controls. However, the turnover costs associated with advertising, screening, interviewing and training a replacement for a bad hire definitely justify generic credit report checks. Consider running credit checks later in the hiring process to give applicants opportunities to explain any bad credit before eliminating them from the process.

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