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Employment Screening and Credit Reports

Pulling credit reports on a customer makes sense when determining the credit worthiness of a person who may be financing a car or other item. However, pulling a credit report based upon a person seeking employment with a company is a whole different matter.

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Andrew Scott is an owner and principal of Scott-Roberts and Associates, LLC, which is an accredited background screening company awarded by the Background Screening Credentialing Council of the National Association of Professional Background Screeners (NAPBS).

Pulling credit reports on a customer makes sense when determining the credit worthiness of a person who may be financing a car or other item. However, pulling a credit report based upon a person seeking employment with a company is a whole different matter. Employers should be very wary of pulling credit reports on an applicant for employment purposes and using said reports to make a hiring decision unless the position oversees, handles or manages money.

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When the financial markets crashed in 2008, commonly referred to as the Great Recession, millions of hardworking and responsible people lost their jobs, their homes and their dignity. Home valuations were bloated; people were provided credit with little to no financial backing or collateral, resulting in John Q. Citizen becoming overleveraged. When the crash occurred, inflated home values plummeted, hard-working people could not pay their mortgages, some had their homes foreclosed or were forced to sell their homes for less than the mortgage owed. 

As a result, many people took a financial hit, which was reflected on their credit reports. It has taken years for most people to recover from that experience and some residual of that period of time can still be seen on people’s credit. Therefore, generally speaking, pulling an applicant’s credit as part of the background screening process usually will not assist the employer with making an informed hiring

decision. A blemish on a person’s credit report is not indicative of a person’s work capabilities and ethic.

Employers should only pull a credit report on an applicant if the position’s responsibilities include overseeing, handling or managing money. When pulling a credit report on an applicant, the reasons for the pull should be related to the job they are being hired for and for business necessity. 

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For example, a car detailer at a dealership will not handle or manage money, therefore there is no job relatedness or business necessity

to review the applicant’s credit history. Conversely, a position that requires a person to oversee or manage money satisfies the job-related criteria for having credit pulled on the applicant. Similarly, business necessity and job relatedness would suggest a credit report be pulled on an applicant who is applying for the comptroller position for a car dealership.

The Equal Employment Opportunity Commission (EEOC) has spoken out against running credit reports on employment applicants as a general course of conducting background checks. The EEOC has suggested such a practice might be discriminatory against minorities and women, unless the position has a business necessity and job relatedness requirement to do as such. 

Overall, there are many components to hiring applicants for your company, one such component involves conducting background checks. As a rule, pulling a credit report

on all employment applicants may not be appropriate, particularly if the position does not oversee, handle or manage money. Understanding a person’s credit history if they have the responsibility of managing or handling money is the correct utilization of credit reports in the hiring process.

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The author of this article is not an attorney and offers no legal advice. The contents of this article should be reviewed by your corporate attorney before taking any action based on its content. 

Click here to view more solutions from Andrew Scott and Scott-Roberts & Associates, LLC.

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