4 Do’s And Don’ts Of Employee Credit Checks

A credit check is essentially an assessment of your financial health. It’s also associated with credit rating, which is crucial if you plan on getting a mortgage or car loan. Notably, your credit standing may be part of the requirements even when looking for a job. Some employers will request a credit check to determine if the employees’ credit records are good. It gives the employer a preview of your financial management and habits that other parts of your application may not reveal. The credit checks will analyze your payment history, location, name, bankruptcy, and debt.

Now you may ask, are these credit checks that important? Well, yes, because they are beneficial for fraud prevention. You don’t want suspicious people to assume a role in your organization and cause any future problems. Therefore, credit checks are a prudent move by the employer or whatever institution may request for it.

However, if you do credit checks, realize that a process needs to be followed depending on where you live and the state’s laws; credit checks should be requested on specific conditions. That said, here are some of the general do’s and don’ts of credit checks.

4 Do's And Don'ts Of Employee Credit Checks

Do’s of Employee Credit Checks

  1. Not Discriminate

Now, for any report to generate an accurate picture, you need to ensure that the procedure does not discriminate against anyone based on gender, skin color, nationality, religion, or disability. It’s a must that all employees are rated on a level playing field. No one should have the right to discriminate against someone else.

The focus of a credit report isn’t to break down all these variables. The goal should be to assess the financial wellness of an individual. If you allow discrimination to permeate your processes, you risk having biased assessments. So, if your company practices discrimination, you may end up being sued and penalized because of such acts.

  1. Consider The Relevant Laws

Typically, state laws permit employers to conduct background checks on employees because they’re essential in preventing fraud. However, it’s imperative to consider the specific laws or regulations regarding these credit checks. These laws guide employers regarding the best practices in conducting a proper credit check.

Remember, when doing credit checks, there’s a chance that you may run into potentially sensitive information. So, these laws provide set parameters that can protect the employees’ privacy to a certain extent. These limits are necessary for protecting personal information. So whatever background checks you do, make sure that they’re within the confines of the law. It’s never right for you to do illegal things and violate someone else’s privacy for personal gain. Do note that there are legal consequences equivalent to what you have done. Additionally, you should pay attention to any other acts that may directly or indirectly affect how credit checks are supposed to be done.

  1. Notify Credit Agency or Company

Usually, a company will outsource this work to professional credit companies within your area, such as Softpullsolutions.com, which has a partnership with major credit bureaus that have access to personal credit information. Likewise, these credit companies also work based on the established national or state rules because credit checks contain private information. Therefore, the agency conducting the background check needs to know that you’re doing it in a compliant manner. So, you need to provide proof that the team member has given you written permission to go ahead with the test. But you also need to prove that your application complies with the Fair Credit Reporting Act (FCRA) requirements or similar legislation relevant to your region.

  1. Provide Notice To Prospective Employees or Team Members

This should come as no surprise. You first need to issue a notice to the team member detailing your intentions to request a credit check. Bear in mind that transparency builds trust. Also, you should be reminded that because this is a serious matter, you need to follow the process diligently. We should remember that these credit checks involve a thorough assessment of an individual’s past, so it’s right to notify them first and wait for their approval.

Ideally, you would want such approval to be taken on record. Most states are compassionate about personal data protection and may regularly check whether your procedures adhere to the rules and regulations. It would also be good to let them know how the process works and what details you’re looking for in that credit check. Generally, most people know and understand that companies may need to do these background checks, especially before onboarding. So, they may not say no, especially if there’s a good reason behind your request.

Don’ts of Employee Credit Checks

  1. Rely Solely On The Report

Now, while it’s true that a credit report is a good snapshot of an individual’s financial health, you shouldn’t rely solely on it as a source of information. You should realize that there are many reasons someone may have a bad score. There are cases wherein they have an unhealthy financial situation and poor money management. However, there’s also a possibility that there are reporting mistakes that may have occurred along the line. Or maybe the person went through a life-altering incident that wreaked havoc on their finances, leading them to bankruptcy and defaulted loan payments.

A credit report may not be enough for you to draw a sound conclusion. It could only serve as an added determinant. There are many other factors you need to consider before deciding if you’ll still hire the person or not. If you’re going to make decisions, you need to ensure that they’re well-rounded and free from error and biases.

  1. Reject Without Explanations

According to the FCRA, if you’re going to turn down a team member because of their credit report, you’re supposed to inform them about it. It’s not that there’s anything wrong with dismissing someone based on their credit report, but you need to let them know why. You should provide them with a summary of the credit report and give them the chance to explain themselves. By doing this, you’ll be able to show them that you respect them and that you want everything to be transparent as possible.

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Remember, there are instances where reporting mistakes are made to these credit reports. So, the individual must be given a chance to confirm that the acquired information is accurate. Don’t forget that your report needs to be free from any discrimination because a prospective team member could sue you if they found out that somebody had manipulated the information.

  1. Adverse Action Notice

It is imperative that you let the employee know their rights to dispute the credit report score if they find it wrong. Don’t hide this vital piece of information, it’s part of their right to know everything. Besides, it’s their reputation and credibility that is at stake. So, give them the benefit of the doubt and let them prove that they’re not what the credit report says. Provide them with the details of the agency that conducted the credit check and give them the address, e-mail, and other contact details. Bear in mind that they also have the right to request a copy of their credit report within 60 days of its release. Make it clear to them that they have the right to defend themselves if they believe that there are discrepancies in the released credit report.

  1. Forget to Discard The Documents

Now, this is extremely important. Every time you finish using these credit reports, and once you’re confident that you don’t need them anymore, destroy or dispose of them safely. The main reason is because of security. You wouldn’t want someone else to get hold of these personal details about one team member. Therefore, it would be best if you eliminate them immediately after use.

You can do this by either shredding or burning the hard copies and deleting the digital files to ensure that there are no traces of those documents in your files. However, don’t be careless with the disposal of these items. After thoroughly checking the credit reports, ensure that they’ll be disposed of properly. Ensure that it’s done the right way to avoid legal repercussions due to violations of the data privacy laws.


It’s inevitable for most companies to run credit checks as a part of their onboarding process. This is especially true if the job entails the prospective employee to handle financial responsibilities for the company. It’s right for the company to do all the background checks necessary to ascertain if the person can be trustworthy and has the integrity to handle their finances.

However, when you’re carrying out these credit checks, it’s always essential to adhere to the specific laws or legislation on conducting it. You should always seek consent from the individual involved first and wait for their approval before proceeding. Always act accordingly based on the laws and regulations, adhere to the process and respect the rights of every individual. Keep in mind that there is always a proper way to do things without compromising your company’s reputation.

Francis Nwokike

Francis Nwokike is a Social Entrepreneur and an experienced Disaster Manager. I love discussing new business trends and marketing tips. I share ideas and tips that will help you grow your business.

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