Running credit checks in hiring process
Running a credit check can be an effective part of an overall reference checking strategy for new hires. The practice makes sense because employees with money problems are less productive. But while it may make sense to run a credit check for employees who will handle money, putting a blanket policy into effect for all employees could lead to legal problems. To implement the policy safely, follow these steps:
- Link the credit check to the job description. The risks of running credit checks on golf course crew members, for example, who won’t have access to cash or the authority to spend it rarely outweigh the benefits.
- Ask applicants to verify that their credit reports are correct during the interview process. One study found that 50% of all credit reports contained some kind of error.
- Beware of eliminating applicants whose poor credit rating stems from medical bills. These can often go into collection while patients wait for insurance companies to pay.
If you reject candidates based on their credit history, the Fair Credit Reporting Act (FCRA) requires you to notify applicants of your decision before you deny employment and give them 60 days to dispute any inaccuracies. You also must send them a copy of their credit report, contact information for the credit agency that supplied the report and a summary of their rights under the FCRA.
Source: Adapted from “Risky Business,” Chris Penttila, Entrepreneur, as published in Manager’s Edge, Nov. 2003.