Employers run credit checks on potential employees, determining whether candidates have enough money to pay their monthly bills. Some employers believe that a clear understanding of a person’s finances can help them predict how well they will perform in the job. Others conduct a credit check before extending a job offer, or only if the person is handling money. If you have questions about the purpose of credit check services, read on!

Employment credit checks

Employment credit checks are standard. It’s common for employers to request a credit report before making an offer to an applicant. But what’s the benefit of doing a credit check for employment?  One recent study of low and middle-income households found that only a third of respondents knew they had been asked to authorize a credit check. And when asked why only one in seven respondents said they did not. 

First, the purpose of running an employment credit check is to find out if an applicant has a record of bad credit. Sometimes, employers will use the credit check to check a potential employee’s financial history if a job applicant has a poor credit score. However, this practice is prohibited for specific jobs. In these cases, employers should use other sources to learn about the applicant, such as resumes, references, and direct online searches.

Soft inquiries on credit reports

Hard and soft inquiries are different in that a tricky question is visible to others, while a delicate question is invisible to others. A hard inquiry is something that a creditor can see if they want to, such as when you apply for a new loan. A soft inquiry, on the other hand, allows a creditor to review your report and score. These inquiries are familiar to current creditors, such as banks and credit card issuers.

Most soft inquiries on credit reports are not related to a recent loan application. These inquiries are often done by utility and cell phone companies as a background check and are not connected to a specific credit application. Although these inquiries impact your credit score, they do not negatively affect it. Soft questions will remain on your report for up to two years and will not damage your score. Soft inquiries are often mistaken for hard ones, which are recorded when you apply for new credit or a new loan.

Rights of applicants

Currently, the Equal Employment Opportunity Commission (EEOC) oversees the use of credit checks in the employment process. According to the EEOC, employers are prohibited from using financial information to discriminate against applicants. In addition, employers cannot apply different standards to male and female applicants. However, some localities have laws restricting the use of credit checks to select job applicants. For example, in New York City, credit check services are illegal for many jobs. Chicago and Philadelphia also limit their use.

These laws are not fully effective due to the lack of public awareness. Some states haven’t even bothered to pursue enforcement efforts because so few complaints exist. However, conditions should increase their public education efforts. One way to do this is to create a state-specific website explaining the law. Some states also rely heavily on media coverage. Nonetheless, the rules do not guarantee protection for applicants. The Commission on Human Rights in New York City has shown an excellent example of public education.

Fees charged by employers for employment credit checks

Employment credit checks are a common practice. They’re used to determine if a potential employee’s credit is poor and can help determine how much a prospective employer should charge to screen applicants. But if employment credit checks are disproportionately used against minority communities, they’re even more unjust. For example, in a recent study, Demos analyzed a nationally representative sample of 997 low-and middle-income households.

While employment credit checks are entirely legal, the practice is still not without consequences. The FCRA requires employers to obtain applicants’ written consent before performing these checks. Typically, employers will receive information like name, address, and employer, as well as open lines of credit, balances, late payments, and bankruptcy. Employers may also request additional information, such as about job-seekers affected by the Great Recession.

By Suzana