Credit Check Do’s and Don’ts in the Hiring Process
Learn when pre-employment credit checks may be restricted as part of the background screening process.
Pre-employment credit background checks can help employers reduce risk when hiring for certain roles, such as those with access to financial assets or monetary decision-making responsibilities, and in some jurisdictions are required in order to finalize the hiring process.,.
Although an employment credit check uses the same consumer credit reports that lenders and credit card companies examine when conducting consumer credit checks, it doesn’t reveal a job applicant’s credit score. While the credit score does not appear, the report may still show information such as:
- Publicly available data such as bankruptcies, accounts in collections, or tax liens
- Credit-to-debt ratio
- Amounts owed on various accounts
When used during the hiring process, credit checks can be a valuable screening tool for many positions, and may even be legally required for some jobs. However, employers must be careful to follow all applicable laws regarding how and when background credit checks can be used.
Credit check restrictions in hiring
The federal Fair Credit Reporting Act (FCRA) strictly regulates the use of credit histories in employment. Generally, employers cannot perform a pre-employment credit check unless the job in question:
- Involves managing or handling large sums of money
- Is a managerial role
- Gives the employee access to company trade secrets
- Provides access to personal financial information
- Legally requires a credit check (for example, certain positions in the financial services industry)
In addition to the FCRA, some states and cities have their own laws regulating when pre-employment credit checks can be conducted and how information from credit reports can be used when making employment decisions. These state and local laws may differ from the FCRA. Employers should consult with their legal team to determine which laws apply to them and what best practices suit their business and compliance needs.
Currently, 11 states, Puerto Rico, and four municipalities have restrictions on the use of credit information in hiring decisions. If these requirements are violated the violation can trigger significant civil and fiscal penalties. Here’s an overview of the laws employers should be aware of:
California forbids employers from using credit checks in hiring decisions, unless the job in question falls under one or more of these specific exceptions:
- Managerial jobs
- Jobs with the state Department of Justice
- Law enforcement and peace officer positions
- Positions for which disclosure of credit report information is a legal requirement, such as some regulated or licensed roles in the financial-services or securities-trading industries
- Jobs, other than that of a retail employee collecting credit applications, that involve regular access to all of these data for any one person: date of birth, Social Security number, and credit or bank account numbers
- Any position that includes authority to sign off on transactions or funds transfers using the employer's bank or credit card account, or the ability to enter into financial contracts on behalf of the employer
- Positions that involve access to the employer's trade secrets or other confidential or proprietary information
- Roles involving access to $10,000 or more in the course of the workday
Additionally, before ordering a consumer credit report concerning a job applicant or employee, the employer must notify the individual in writing of the basis under Labor Code section 1024.5 for permissibly using the consumer credit report.
Colorado forbids the use of pre-employment credit checks except in the cases of:
- Jobs where disclosure of credit information is required by law (as is the case in some licensed or regulated financial industries)
- When credit and financial responsibility are substantially related to the position at hand and the employer explains the relevance of the credit check to the applicant.
Connecticut prohibits use of credit reports in employment decisions unless:
- The report is required by law
- The employer is a financial institution
- The employer has reasonable belief the employee is engaged in activity that violates the law
- A credit check is substantially related to the job
- The position is a managerial job that:
- Involves setting direction/control of business
- Involves access to personal or financial information other than that customarily provided in a retailtransaction
- Involves a fiduciary responsibility to the employer
- Provides expense account or corporate debit/credit card
- Provides access to confidential or proprietary information
- Involves access to employer's nonfinancial assets valued at $2005 or more.
Delaware forbids the use of credit checks in the hiring process prior to the completion of a first interview.
Hawaii employers can check an applicant’s credit only if doing so is relevant to the work required and only after a job offer has been made. Exceptions include:
- Employers required or authorized under federal or state law to review an applicant’s credit information
- Managerial or supervisory positions
- Positions at federally insured financial institutions.
Illinois prohibits Illinois employers from asking about an applicant’s credit history or seeking a credit report in a pre-employment background check, unless credit is a “bona fide occupational requirement” of the position, as in jobs that involve custody of or unsupervised access to cash or assets, or access to personal or confidential financial information.
Chicago forbids employers from inquiring into credit history when making employment decisions except for jobs:
- Jobs with banking, debt collection, insurance or surety companies
- Jobs with municipal law enforcement or investigative agencies
- Roles with custody assets of $2,500 or more and/or signatory power over assets of $100.00 or more per transaction
- The position involves access to sensitive information, financial information, trade secrets, or state or national security information
- Jobs where a credit check is legally required or is otherwise a bona fide occupational requirement
- The position is a managerial position involving setting direction or control of the business
Maryland employers may request a job applicant’s credit report only after making a job offer and notifying the candidate in writing, and only if a “bona fide, job-related reason" exists for seeking the information.
Nevada forbids employers from making unfavorable hiring or promotion decisions against applicants who do not consent to a credit check as a condition of employment. However, employers can request and consider an applicant’s credit report if:
- A credit check is required or authorized by law
- The employer has a good faith belief that the applicant has violated state or federal law
- The employer believes that a credit report is significantly related to the position in question (for example, certain positions in banking, law enforcement, or gaming)
Oregon prohibits employers from inquiring into credit history when making an employment decision, unless the individual is given advance written notice of the reasons for the use of such information and the credit history is substantially related to the position sought. The following exist as exemptions:
- Jobs at federally insured banks or credit unions
- Jobs such as public safety officers, peace officers, law enforcement officers, or transit security officials
Vermont employers cannot request a credit report on a job applicants or employees unless:
- The law requires a credit check for when hiring for the position
- The position is that of a first responder.
- The position entails financial fiduciary duty to the employer or a client of the employer
- The position involves access to payroll information.
- A credit check is a valid predictor of employee performance
Even when a Vermont employer can lawfully request a credit check on an applicant or employee, the employer cannot use that information as the sole factor in making an employment decision.
Washington employers cannot obtain a credit report for employment purposes unless doing so is required by law or credit information is substantially related to the job and the reason for the credit check is disclosed in writing to the applicant or employee.
Puerto Rico prohibits employers from refusing to hire, dismissing, or otherwise discriminating against an employee or applicant because of the information in a credit report or on account of the employee’s credit history. Credit reports may be obtained only for certain positions, including:
- Managerial positions
- Positions for which a credit report is required by law
- Positions that require access to financial or personal information of other persons and not the information usually provided for a purchase transaction
- Positions that require access to trade secrets (as defined by local law)
- Positions that require a fiduciary responsibility to the employer; and certain positions that have regular access to cash or other goods in excess of $10,00 on a daily basis
New York City prohibits employers with four or more employees (including owners) from checking job candidates’ credit or asking about credit history when making employment decisions. The law applies even if employees don’t all work in the same location, even if they don’t all work in New York City. Credit information can be used in hiring decisions only for:
- Police and peace officers and executive-level jobs with power over finances, computer security, or trade secrets.
- Positions requiring employees to be bonded by City, state, or federal law
- Positions requiring a security clearance
- Non-clerical positions with access to trade secrets or national security information
- Positions having signatory authority over third party assets of over $10,000 and/or positions that have a fiduciary responsibility to enter financial agreements on the employer’s behalf for $10,000 or more; and
- Positions that are allowed to modify digital security systems protecting the employer or client’s networks or databases.
Philadelphia prohibits employers from using credit information for a job applicant or employee in decisions related to hiring, firing, promotion, or discipline. Although originally passed in 2016, a 2020 amendment to the Fair Practices Ordinance added law enforcement agencies and financial institutions to those who must comply with credit-related restrictions. The exemptions are as follows:
- Positions requiring an employee to be bonded under City, state, or federal law;
- Supervisory Or Managerial Positions involving setting the direction or policies of a business or direction thereof;
- positions involving significant financial responsibility to the employer, including authority to make payments, transfer money, collect debts, or enter contracts, but not including handling retail transactions;
- positions requiring access to financial information pertaining to customers, other employees, or employers, other than information provided in a retail setting;
- Positions requiring access to confidential or proprietary information that derives substantial value from secrecy.
District of Columbia (DC) employers may not ask for or use credit information for a current or potential employee in making employment decisions, exception under the following situations:
- If DC law requires an employer to obtain an employee’s credit information
- If an individual applies for, or is employed as, a police officer with the Metropolitan Police Department, as a special police officer or campus police officer, or in a position with a law enforcement function
- In a case where credit information must be provided to the Office of the Chief Financial Officer of DC
- If an employee must have a security clearance under District law
- If DC government employees must provide disclosures to the Board of Ethics and Government Accountability, or to the Office of the Inspector General
- If a job requires the employee to access personal financial information, such as when employed in financial institutions
- If the employer seeks the credit check in response to a lawful court order or while cooperating with a law enforcement investigation
Recommendation for employers
Ensure that any practice of obtaining and using credit reports comply with existing federal, state, and local laws.
Multi-state employers should ensure compliance with the requirements of the federal Fair Credit Reporting Act and applicable state and local laws.
Conducting compliant credit checks with Checkr
As with any type of background check, pre-employment credit checks should be used in accordance with the employer’s background check policy. Credit checks must comply with the candidate’s rights under the FCRA. For example, you must provide job applicants with written disclosure that you plan to conduct a credit check and get their written authorization before performing the credit check. At Checkr, we simplify this process for you by automatically providing disclosure notices and authorization language.A pre-employment credit check may reveal information that raises concerns about a candidate’s integrity or ability to handle money in a responsible manner. Before deciding not to hire based on this information, employers must follow proper adverse action procedures as outlined by the FCRA or other relevant state and local laws. This includes issuing a pre-adverse action notice, giving the candidate a chance to dispute errors or offer more context around the situation, and issuing a final adverse action notice if your final hiring decision is based on information found in the credit report. Checkr customers benefit from our platform’s built-in adverse action workflow that supports compliance by walking you through the process and alerting you when you’re able to move to the next step.Laws regarding employment background checks are ever-changing which can be challenging for any HR team to keep pace with. Using an accredited CRA, like Checkr, can help enable compliance with the legal landscape of background checks. Our modern platform filters out information that is not legally reportable, while our legal experts continually monitor changes in legislation. Checkr streamlines background screenings–from credit checks to criminal history–for faster and fairer hiring.
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Disclaimer
Nothing in Checkr’s Blog should be construed as legal advice, guidance, or counsel. Companies should consult their own legal counsel about their compliance responsibilities under the FCRA and applicable state and local laws. Checkr expressly disclaims any warranties or responsibility or damages associated with or arising out of information provided.