Top 5 Reasons Employers Run an Employment Background Check
An employment background check, especially credit checks, has begun to replace employer references for hiring managers to investigate candidate suitability.
Employers who use background checks pay extra to get your credit score, but they do so to see the payment history, debt load, bankruptcies, and liens. Although their accuracy and ability to predict behavior remain debated, background and credit checks serve five essential purposes for employers.
Here are five purposes employers carry out employment background checks:
5. Legal Requirement
Employers may check credit scores to comply with legislation requiring them to conduct background investigations, including a credit check. For example, Title 5 Code of Federal Regulations Part 731 (5 CFR 731) and several executive orders require federal agencies to do background and credit checks on employees and government contractors. Brokers must report any personal bankruptcies to comply with financial industry regulatory authority regulations. Credit checks allow employers to confirm their reports.
However, getting access is not easy; the Fair Credit Reporting Act (FCRA), which sets the limitations on when and who can access your credit information, governs access to your credit report. The FCRA sets a few restrictions on employers using credit reports to screen new job applicants.
First, the employer will need your permission before checking your credit report. This implies that there will be no access to your information without your consent.
Hold on…
Before you decide not to grant permission, it will be best to consider what your refusal would imply to a possible employer.
Also, suppose the potential employer decides against hiring you based on your credit report. In that case, the employer must provide you with a copy of the information to review before determining or even denying you the employment opportunity. This measure gives the applicant a chance to address and correct those errors.
READ MORE: What does a background check show?
4. Assess Suitability
Wikihow
While doing their employment background check, some employers find a correlation between personal finance management and job performance, with your credit report containing things like how much money you owe, whether you meet your regular payments, whether you’ve applied for credit recently, and so on.
It gives employers some information to help decide whether you are suitable for the job, although they might need access to all the information listed in the credit report.
While carrying out employment background checks, some employers view high personal debt and payment delinquencies as distractions that negatively affect on-the-job productivity.
Credit reports give employers insight into applicants’ judgment and possible acceptance of job responsibilities. Financial services employers want to confirm that prospective employees have no bankruptcy or credit scars that could mar their reputations.
“Foreclosures, multiple bank account closings or liens against the job candidate could be interpreted as signs of irresponsibility and negligence,” says Peter Yang, co-founder of ResumeGo. This company offers career coaching and résumé-writing services.
An employer might interpret major money problems at home to mean you need more decision-making skills and judgment to excel in your job. If you want to see what is on your background check before your prospective employer does, look at these background check services.
3. Data Breach
The Inquirer
With identity theft on the rise, safeguarding sensitive information about clients, customers, and employees has become a primary business concern. Filling positions with access to account numbers or confidential information such as employee benefits, personal data, and salaries requires organizations to know who they’re hiring.
They rely on credit checks as a tool to avoid negligent hiring allegations.
“Generally, employers want to look at your credit as a safety measure and as proof that they tried to find out as much as possible about your background before they hired you,” says Jeff White, financial analyst and staff writer for Fit Small Business. This site provides financial advice to small businesses. White explains that if you have a history of mismanaging money in your credit report and then blowing the company’s capital, the company could be sued for negligent hiring by shareholders.
2. Confirm Résumé and Application Information
Dreamstime
Employment background checks will also ensure the applicant has the degrees and professional certifications they claim they do. Sometimes, learning this information can be about confirming honesty; other times, when certain degrees or certificates are legally required for a person to perform a job, they are about abiding by the law.
Credit reports contain valid identifiers that employers can use to verify an applicant’s self-portrayal. Social Security numbers, employment histories, names, and addresses on credit reports can reveal résumé contradictions. Done in conjunction with a background check, a credit report can reveal employment gaps not included in the résumé.
Barry Maher, author of Filling the Glass, adds that a credit report can provide a snapshot of a person’s economic life that may confirm or contradict the résumé.
“Perhaps someone claims they made a good six-figure income for the last ten years, yet they show repeated credit problems during that period. Are they lying about their income? Are they poor money managers? Do they have a major financial issue that’s draining their resources? Any of these might (or might not) hurt their job.”
1. Predicting Fraud Risk
Anders CPA
Most employers run pre-employment background checks primarily to flag any criminal convictions in an applicant’s past. Sometimes, these criminal charges mean someone is dangerous, unreliable, untrustworthy, or otherwise unsuitable for hire.
Other times, the charges must be revised, updated, or relevant to the job.
Candidates for jobs that manage an organization’s financial resources or involve handling cash should expect to have their finances investigated by employers.
Nearly half—45 percent—of employers surveyed by the Society for Human Resource Management listed embezzlement and theft prevention as the top reason for using credit checks in hiring.
The Association of Certified Fraud Examiners has found that those who commit fraud share one of two characteristics: living beyond their means or struggling financially.
Employers are obligated under OSHA to provide a safe workplace that is free of known hazards. As such, many employers opt to perform at least a criminal background check on potential employees before finalizing any offer of employment.
