Revealing the benefits and drawbacks of pre-employment screening credit checks

What is a pre-employment screening credit check?

Proving to be standard practice in the hiring process, a pre-employment screening credit check (or credit check as it is often referred to) is where an employer takes a look into a job applicant's financial history before the candidate takes on a role. This evaluation primarily includes a comprehensive review of the applicant's credit report and credit score, two critical components that provide insights into an individual's financial background.

• Background Check Credit Report: At the centre of a pre-employment credit check is the credit report, a detailed document that encompasses an individual's financial history. This background check credit report comprises information about loans, credit card accounts, payment history, and other financial obligations. It also contains public records such as bankruptcies, tax liens, and judgments.
• Background Check Credit Score: Alongside the background check credit report, employers often request the applicant's credit score. This is a numerical representation of the individual's creditworthiness, typically ranging from 300 to 850. Higher scores generally reflect a stronger credit history and financial responsibility.
• Public Records: In addition to the background check credit report and background check credit score, employers may access public records to identify any legal issues related to the applicant, such as criminal records, civil judgments, and bankruptcies.

Primarily, the purpose of a pre-employment background credit check allows employers to evaluate an applicant's financial responsibility and potential risk factors. It provides employers with valuable information to make informed decisions during the hiring process, particularly for roles that involve financial responsibilities, access to sensitive company information, or handling cash and valuable assets.

How does a pre-employment screening credit check work?

In the UK, pre-employment screening credit checks are conducted following specific procedures to ensure compliance with data protection and privacy laws.

Here's how a pre-employment credit check typically works in the UK:

• Applicant consent: The process begins with the job applicant's consent. Before conducting a credit check, the employer must obtain written permission from the applicant. This consent is usually obtained through a signed document or electronic form. It's important to note that consent is a legal requirement under the General Data Protection Regulation (GDPR) and the Data Protection Act 2018.
• Request to a Credit Reference Agency (CRA): Once the applicant provides consent, the employer contacts a CRA to request the applicant's credit report and credit score. In the UK, the three main CRAs are Equifax, Experian, and TransUnion. The employer may request reports from one or more of these agencies.
• Credit report retrieval: The CRA compiles a credit report for the applicant based on information from various financial institutions and lenders. This report includes details about the applicant's credit accounts, payment history, outstanding debts, and public records, such as bankruptcies and County Court Judgments (CCJs).
• Credit score: Alongside the credit report, the employer may also receive the applicant's credit score, which is a numerical representation of their creditworthiness. Credit scores are calculated by the CRAs based on the information in the credit report.
• Evaluation: The employer reviews the credit report and credit score as part of the overall assessment of the applicant's suitability for the position. They may look for factors such as outstanding debts, late payments, or other financial issues that could be relevant to the job.
• Decision-making: Based on the information obtained from the credit check and other aspects of the hiring process (such as interviews, qualifications, and references), the employer makes a hiring decision. It's important to consider the credit check as just one element of the overall decision-making process.
• Notification to the applicant: If the results of the credit check are used to make a hiring decision, the employer must inform the applicant of the decision and provide them with a copy of the credit report, credit score, and information on how to obtain a free credit report from the CRA.

It's essential to emphasise that conducting a credit check in the UK is subject to legal and regulatory guidelines, and employers must follow these regulations. The primary legislation governing credit checks and data protection in the UK includes the General Data Protection Regulation (GDPR) and the Data Protection Act 2018.

Also, credit checks should only be conducted in the background screening process if it is relevant to the position for which the applicant is applying. Conducting credit checks for roles where financial responsibility is not a key requirement may be deemed unnecessary and potentially discriminatory.

What is included in a background check credit report?

In the UK, a background check credit report contains specific financial information about an individual. This report is compiled by CRAs and provides details about the person's credit history and financial behaviour.

Here's what you can expect to find in a background screening UK credit check report:

• Personal information: The report will include personal details about the individual, such as their name, date of birth, current and previous addresses, and any electoral roll information.
• Credit accounts: The report lists any credit accounts in the individual's name, including credit cards, loans, mortgages, and other financial products. It specifies the name of the creditor, the account number, the account type, and the date the account was opened.
• Payment history: Information about the individual's payment history on credit accounts is included. This section will detail whether payments were made on time, whether there have been late or missed payments, and any defaults.
• Outstanding debts: The report provides an overview of the individual's outstanding debts, including the current balance on each account and the total amount owed.
• Public records: This section includes information on any public records related to the individual's finances, such as bankruptcies, Individual Voluntary Arrangements (IVAs), CCJs, and any other legal actions taken against them.
• Financial associations: If the individual is financially associated with someone, such as a joint account holder, this information may be noted in the report. The credit history of the associated person may affect the individual's creditworthiness.
• Searches: The report will list who has recently accessed the individual's credit information. This includes both hard and soft credit inquiries. Hard inquiries are typically related to credit applications and may affect the credit score, while soft inquiries are often for reference checks and do not impact the score.
• Credit score: The credit report may include the individual's credit score, which is a numerical representation of their creditworthiness.
• Linked addresses: If there are any linked addresses associated with the individual's credit history, these may be listed in the report.

It's important to note that a credit check report in the UK will not include information about an individual's criminal record or other personal background details beyond their financial history. The primary purpose of this report is to assess an individual's creditworthiness and financial responsibility.

Why are credit checks so important?

Pre-employment screening credit checks are considered important by some employers for several reasons, depending on the nature of the job and the industry. However, it's essential to recognise that the importance of a credit check varies from one job to another, and it remains a subject of debate due to its potential advantages and disadvantages.

Here are some reasons why some employers consider pre-employment screening credit checks important:

• Risk mitigation: In roles where employees have access to financial information, valuable assets, or cash, employers may use credit checks to reduce the risk of theft, fraud, or embezzlement. A candidate with a history of financial irresponsibility may be perceived as a higher risk.
• Financial responsibility: For positions that involve financial decision-making, a positive credit history may be seen as an indicator of an individual's ability to manage responsibilities and make sound financial decisions. Employers may argue that this reflects a candidate's ability to handle company resources responsibly.
• Trustworthiness: Employers may view a strong credit history as a sign of trustworthiness. Individuals with good credit records might be perceived as more likely to be honest and reliable employees.
• Security clearance and sensitive positions: In certain government and security-sensitive positions, pre-employment screening credit checks are essential to ensure that individuals with access to classified information or sensitive areas have no financial vulnerabilities that could be exploited.
• Industry regulations: In some industries, such as finance or insurance, regulatory requirements may necessitate credit checks to ensure that employees meet specific financial integrity standards.
• Client and customer trust: Some employers believe that a workforce with good financial backgrounds can help maintain or enhance client or customer trust. This is particularly true when employees have direct interactions with clients' financial matters.
• Sound business practices: Employers may consider credit checks to be part of sound business practices, especially in industries where maintaining financial stability is essential to the organisation's success.

Ultimately, the importance of pre-employment credit checks will depend on the specific needs of the employer, the nature of the job, and the legal and regulatory framework in the region where the hiring takes place. Laws and regulations may restrict the use of credit checks and require employers to demonstrate a valid and job-related reason for conducting them. These regulations aim to strike a balance between the interests of employers and the protection of job applicants' rights and privacy.

What are the negatives to conducting credit checks in the hiring process?

Conducting pre-employment screening credit checks can have several potential drawbacks and negative implications. Some people argue that these negatives should be carefully considered when using credit checks in the hiring process.

A few negatives associated with pre-employment credit checks include:

• Privacy concerns: Credit checks delve into an individual's personal financial history, which many consider an invasion of privacy. Some view this practice as overly intrusive, as it exposes personal financial details that may have no bearing on an individual's job performance.
• Discrimination risk: There is a concern that pre-employment screening credit checks can enable socioeconomic inequalities, as individuals who have faced financial hardships due to various reasons may be unfairly penalised. This can easily affect marginalized communities and worsen existing inequalities in employment.
• Inaccuracy of data: Credit reports may contain errors or outdated information. A job applicant may be unfairly judged based on inaccuracies in their background check credit report, which can lead to missed job opportunities or unfair treatment during the hiring process.
• Relevance to the job: For many job positions, an individual's credit history may have little or no relevance to their ability to perform the job, therefore conducting credit checks in such cases can be unfair.
• Potential legal issues: In some jurisdictions, there are laws and regulations governing the use of pre-employment credit checks. Employers must comply with these regulations, and failure to do so can lead to legal issues and liabilities.
• Limited predictive value: Some studies suggest that there is limited evidence to support the idea that an individual's credit history is a reliable predictor of their job performance or trustworthiness in the workplace. This calls into question the value of credit checks as a background screening tool.
• Economic impact: Being denied a job due to a poor credit history can continue a negative cycle for individuals facing financial difficulties, making it harder for them to improve their financial situation. This can contribute to financial instability and unemployment.
• Complex and lengthy hiring process: Adding credit checks to the hiring process can make it more complex and lengthier, potentially leading to delays in filling job vacancies and increasing the administrative burden on employers.
• Reduced job opportunities: Job applicants with poor credit histories may find it challenging to secure employment, particularly in industries or positions that routinely conduct credit checks. This can limit their job opportunities and affect their ability to support themselves and their families.
• Negative impact on employee morale: Employees may feel uncomfortable or demoralised if they learn that their employer conducts credit checks on them. This can harm employee morale and trust in the organisation.

How does using an automated screening platform (such as Access Screening) help businesses to conduct their credit checks and reverse the negatives of conducting them?

Using an automated screening platform, like Access Screening, can provide several advantages to businesses when conducting background and credit check for employment, helping to mitigate some of the negatives associated with them.

Here's how such platforms can address these issues:

• Accuracy and consistency: Automated screening platforms are designed to provide accurate and consistent results. They can help reduce the risk of errors and inaccuracies in background check credit reports,consequently minimising the potential negative impact of incorrect information on a candidate's evaluation.
• Compliance with regulations: Screening platforms are often equipped with built-in compliance features that help businesses adhere to local, regional, and national laws and regulations regarding credit checks. This ensures that credit checks are conducted in a legal and fair manner, reducing the risk of legal issues.
• Data security: Automated platforms are designed to handle sensitive personal information securely. They often have robust data security measures in place to protect the privacy of job applicants, which helps to address the privacy concerns associated with credit checks.
• Efficiency: Automation streamlines the screening process, making it more efficient and less time-consuming. This reduces the complexity and length of the hiring process, potentially addressing concerns related to delays in filling job vacancies.
• Customisation: Many automated screening platforms allow businesses to customise the criteria for pre-employment screening credit checks. This means that credit checks can be limited to positions where financial responsibility is essential, reducing the potential for arbitrary use of credit checks.
• Transparency: Automated platforms can provide detailed and transparent background check credit reports to both employers and job applicants. This transparency can help job applicants understand why a credit check is being conducted and what specific information is being evaluated.
• Fairness and inclusion: By customising criteria, businesses can ensure that credit checks are only conducted for roles where credit history is relevant. This approach can reduce the risk of enabling socioeconomic inequalities and help promote a more inclusive hiring process.
• Reduced bias: Automated systems can help reduce the potential for human bias in the decision-making process. They can provide objective assessments based on predetermined criteria, therefore minimising the risk of discriminatory practices.
• Faster decision-making: Automation allows for quicker processing of credit checks, which can lead to faster hiring decisions. This may alleviate concerns about the lengthy hiring process associated with manual credit checks.
• Communication and dispute sesolution: Automated platforms can facilitate clear communication between employers and job applicants regarding the results of credit checks. If inaccuracies are identified, these platforms can streamline the dispute resolution process, helping to address concerns related to data accuracy.

While automated screening platforms offer many advantages, it's important for businesses to implement them responsibly and ethically. Clear policies and procedures should be in place to govern the use of pre-employment screening credit checks, and job applicants should be informed of the process and their rights in a transparent manner. This approach can help businesses harness the benefits of automation while addressing the potential negatives associated with credit checks in a more effective and equitable manner.