Employers are Checking Credit Reports – Are You Ready?

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How to Improve Your Credit Score - the Good, the Bad, the Ugly

Employer Credit ChecksAccording to a survey by the Society for Human Resource Management (SHRM), almost 50 percent of employers in the U.S. conduct a credit check on current and potential employees. The majority of the companies that conduct a credit check do so during the application and screening process prior to hiring a new employee. Of the companies that pull credit, 65 percent allow potential employees to explain any negative items that appear on their credit reports.

Why are employers using credit checks, and what does it mean for your job search?

[Free Resource: Check your free credit report and score]

Making Better Hiring Decisions

Some employees feel they can judge a person by the way they manage their own personal finances. These employers feel that if employees have good credit and good money management skills, then they will make better employees. However, according to an article in MSN Money, there is no factual evidence that employees with good credit make better employees.

Some companies conduct random credit checks on existing employees as well. There are even some employers that will not allow employees to work for them any longer if they have accounts that go into collection or the employee has to file for bankruptcy.

Improving Money Management

Employee credit checks are especially common for employees in financial services and money management positions. It makes sense that if an employee is responsible for managing a company’s finances that the company wants to know that the employee has good money management skills under their belt.

Positions that deal with the company finances and money management are not the only ones that employers are pulling credit checks on, however. Some companies conduct credit checks on all of their employees.

Reasons for the Credit Check

According to SHRM, the number one reason companies cite for credit checks on employees is a means to reduce theft, embezzlement and other criminal activity. The reason is that some employers believe that if an employee is having financial problems, they might be more likely to dip into the company funds than an employee that isn’t having money issues. Again, MSN Money states that there is no evidence that supports this finding – just because someone has bad credit doesn’t mean they are going to steal from the company, but some companies prefer to maintain a higher standard or practice “better safe than sorry.”

The second biggest reason employers say they pull credit is to reduce their legal liability in negligent hiring. Again, if the employee steals from the company’s clients or harms its customers in some way, the company can use the credit and background check as a way to cover themselves in a lawsuit.

[Free Resource: Check your free credit report and score]

The third biggest reason for conducting employee credit checks is to determine the overall trustworthiness of the employee or candidate.