Credit check, simply put, is when an employer pulls out the financial records of an applicant or current employee, to have an overview of their financial history. How is this relevant to an employer or the organisation as a whole? Credit checks are a very much relevant process before on-boarding a candidate as it shows just how fiscally responsible a person is, and this reflects the kind of attitude they will show to company finances.
It is well-known that any kind of business responsibility is accompanied by a financial responsibility. Regardless of what position an employee holds, the company needs to be able to trust them when it comes to money, and a thorough credit history check makes this possible. This is a kind of assurance to the organisation that their employees will not cause any financial mismanagement like frauds or any other crime, which would be a huge loss for them.
As per the findings of a survey conducted by the Society of Human Resource Management (SHRM), as much as 60% of all employers conduct a credit default check on their prospective. Especially in industries and companies where employees have to handle huge amounts of financial transactions like accounting and banking, and for executive-level positions, a credit check is necessary. This is because there is a much higher chance of financial frauds being committed in these areas.
What exactly does a credit check verify?
A credit check reveals certain information about an employee, especially in relation to his or her finances. Usually, an employer will have access to information like the employee or candidate’s credit card and debit card debts, payment and default history, details of any delayed payments, loans and so on. In addition to this financial information, a credit default check also verifies personal details of the employee or candidate through national ID checks. This helps organisations verify the name, age, address, and other important details of the candidate.
It is important for employers to note that in India, there is a law that prevents anyone from using another person’s credit information, and if anyone is found guilty of making changes or leaking any kind of credit data, there are strict penalties that have to be met. This law is called the Credit Information Companies (Regulation) Act, 2005. And in the U.S, there is a similar law that regulates the use of consumer credit card information, known as the Fair Credit Reporting Act, commonly referred to as FCRA.
As an employer, you must ensure that sensitive information of employees or candidates must be handled in a professional and responsible fashion. Make sure you never share such confidential information with third party or alter any details under any circumstance.
Why a credit check is a necessary step in the hiring process
While it is the responsibility of the employer to conduct thorough credit history checks in the best interest of the organisation, it is important to understand why a credit check is such a crucial part of the employee screening service.
For any organisation, how you handle finances and the integrity of your entire business are co-dependent. If you hire an employee who has a history of financial mismanagement, it could destroy your reputation and brand image. Especially if the position that employee fills is that of a leadership level or any role directly related to your company’s finances, the risk is much higher. However, thoroughly vetting any candidate using credit checks, irrespective of their positions, will prevent such risks.
Moreover, how a person handles his/her finances tells a lot about their attitude, intentions and the kind of person they are. With a credit check, you can easily flag any credit default cases, and understand how responsible they are, helping you avoid many troubles in the future.