A Comprehensive Guide to Conducting Background Credit Checks
Conducting background credit checks is a crucial process for various individuals and organizations, whether you’re a landlord, employer, or a financial institution. It’s essential to ensure that the people you’re dealing with have a responsible financial history.
The first step in this process is to obtain written consent from the individual you’re checking. This is typically done through a signed authorization form. Next, you’ll need to gather the necessary information, including the individual’s full name, social security number, and current address.
With this information in hand, you can contact one or more credit reporting agencies to obtain a credit report. Review the report carefully, paying close attention to factors like payment history, outstanding debts, and any public records such as bankruptcies or tax liens.
Conducting background credit checks responsibly is a valuable tool for making informed decisions in various aspects of life, but it’s essential to do so while respecting individuals’ rights and maintaining legal compliance.
How to Conduct a Background Credit Check
To conduct a background credit check, you will need to:
Get the applicant’s consent. You must obtain the applicant’s written consent before running a background credit check. This consent must be separate from the job application and must clearly explain the purpose of the check and what information will be collected.
Choose a background check company. There are many different background check companies available, so it is important to choose one that is reputable and compliant with all applicable laws.
Provide the applicant’s information to the background check company. You will need to provide the applicant’s full name, date of birth, Social Security number, and address to the background check company.
Review the background check results. Once the background check is complete, the background check company will provide you with a report of their findings. This report will typically include information about the applicant’s criminal history, credit history, and employment history.
Make a hiring decision. Once you have reviewed the background check results, you can make a hiring decision based on all of the information available to you.
Types of Background Credit Checks
There are many different types of background credit checks that employers can run on job applicants. The type of background check that is run will typically depend on the nature of the job and the industry in which the employer operates.
Here are some of the most common types of background credit checks:
Criminal background checks: These checks search for criminal records at the county, state, and federal levels. Criminal background checks may also include information about arrests, convictions, and pending charges.
Credit history checks: These checks review an individual’s credit history, including their credit score, open accounts, and payment history. Credit history checks can be used to assess an individual’s financial responsibility and trustworthiness.
Employment verification: This type of check verifies an individual’s previous employment history. Employment verification checks may include information about the individual’s job title, job duties, and dates of employment.
Education verification: This type of check verifies an individual’s educational history. Education verification checks may include information about the individual’s degrees, diplomas, and certificates.
Reference checks: These checks involve contacting the individual’s references to get their feedback on the individual’s work performance, character, and qualifications.
Employers are not allowed to run all types of background credit checks on all job applicants. For example, employers cannot run credit history checks on most entry-level positions. It is important to check with your local laws and regulations to make sure that you are complying with all applicable requirements.
Things to Look for in a Background Credit Check
Here are some things to look for in a background credit check:
Criminal history: Look for any criminal convictions, especially those that are relevant to the job. You should also look for any pending charges or arrests.
Credit history: Look for any patterns of late payments or defaults on loans and other debts. You should also look for any bankruptcies or liens.
Employment history: Look for any gaps in employment or unexplained job changes. You should also look for any disciplinary action taken against the applicant by previous employers.
Education verification: Make sure that the applicant’s educational history matches what they have stated on their resume or job application.
Reference checks: Contact the applicant’s references to get their feedback on the applicant’s work performance, character, and qualifications.
Give the applicant a chance to respond. If you find any negative information in the background credit check report, give the applicant a chance to explain the situation.
By following these tips, you can ensure that you are using background credit checks in a fair and responsible manner.
Common Mistakes to Avoid When Conducting a Background Credit Check
Here are some common mistakes to avoid when conducting a background credit check:
Here are some additional tips to avoid making mistakes when conducting a background credit check:
- Be clear about your purpose. When obtaining the applicant’s consent, be sure to explain why you are conducting a background credit check and what information you will be collecting.
- Use a standardized process. Develop a standardized process for conducting background credit checks on all job applicants.
- Train your staff. Train your staff on the FCRA and other applicable laws and regulations. This will help to ensure that they are conducting background credit checks in a compliant manner.
Have a process for handling disputes. If an applicant disputes any of the information in their background credit check report, have a process in place for handling the dispute. This will help to ensure that the applicant’s rights are protected.