There are a lot of applicant qualities that can influence your hiring decision— but have you considered adding in a credit check to your application process? If you’re wondering what a credit check has to do with hiring the right employee, you’re not alone.

Many HR professionals and small business hiring managers are starting to adopt this step in the hiring process to refine their applicant pool and increase their odds of hiring a great new employee.

We’re discussing the main reasons you should consider implementing a credit check process in your search for new hires and proving some other important hiring tips along the way.

Personal finance management may indicate professional management

If you’re hiring for a position that deals with company money or consumer finances, you may consider running a credit check for employment to get a better idea of how an applicant handles his or her personal finances.

If the candidate has a substantial amount of debt, late payments, or broken financial agreements, these are serious red flags for an account manager or financial advisory position.

If a person seems to have poor money management skills in his or her personal life, that may translate into the professional work environment – something you definitely want to avoid.

Give insight on organizational qualities and reliability

Running a comprehensive background check on potential employees can give employers an insider perspective on an applicant’s qualities like organization and reliability.

If a prospective employee is constantly missing payments or maxing out credit limits, an employer may consider this an indicator of a lack of responsibility.

Reduce the risk of fraud

Applicants that demonstrate financial distress may present a risk for potential fraud or theft— many employers choose to run a credit check as a precautionary measure to prevent possible issues.

Small businesses that handle customer cash and information may want to initiate a credit check in order to combat potential loss and the cost of employee turnover.

Employee Credit Check

Things to note before running a credit check on applicants:

Before you run a credit check on your prospective candidates, make sure your business is operating in compliance with labor laws. Your applicants have certain rights when it comes to their personal financial information and their right to equal opportunity employment.

The Equal Employment Opportunity Commission and the Federal Trade Commission outline information for employers to know before obtaining background information of any kind. Use the following as guidelines, but be sure to check the details for yourself before running a check on your candidates.

  • Make sure to treat every applicant equally— do not run a check on an applicant based on their race, national origin, sex, age, color, religion, etc.
  • If you are running a credit check on prospective employees, you must tell the applicants that you might use the information to make a decision based on their results.
  • The employer must get written consent from the applicant authorizing a credit check.
  • Employers must ensure that the company performing the background check is compliant with FCRA requirements.
  • Employers must provide a warning before rejecting an applicant with a copy of the background check and summary of the applicant rights. Employers must also give the applicant time to respond to the results in question (typically 3 days).
  • Finally, the employer must follow up with the applicant and provide the name of the credit reporting agency, contact information, and detail the applicant’s right to a free copy of the report within 60 days of the initial credit check.

Human Resources regulations can be a bit of a tricky process. Hiring an HR professional can help you make sure you’re in compliance and following proper procedures. Or, use an HR management tool like Zenefits to help you and your employees stay organized throughout their careers at your company.

Final Words

Running a credit check on your potential employees is a great way to reduce the risk of hiring the wrong applicant for the available position. However, accessing an applicant’s personal information is a bit of a delicate process.

If your company decides to run a credit check on prospective candidates, make sure you are following proper protocol. And keep in mind, background checks can provide you with a lot of information but this should only be a piece of your hiring process.

Checking an applicant’s references, professional skills, employment history, and fit with your company culture are all important things to consider in addition to a background check.