All You Need to Know about Credit Checks for Employment

Since the General Data Protection Regulation (GDPR) came into effect, many organisations have had to increase their efforts to ensure that current and prospective employees do not misuse their positions. For companies working within financial institutions, security and many other fields of work, credit checks are an increasingly common part of the job application process. Applicants who don’t pass a background credit check may not even meet the selection criteria in many cases.

What is a Credit Check?

Credit checks, also known as credit searches, are a type of check where a company looks at information on your credit report to understand your financial behaviour. They must have a legitimate reason for conducting credit checks on an individual. The individual also has a right to view this information and can check their credit history without affecting their credit score.

As part of the credit check process, companies may look at:

  • How much credit you currently have
  • Whether you’ve paid back your credit
  • How you are managing your finances
  • Financial associations you may have (i.e. if you share a bank account with someone, and by extension, what their credit history is like)

Difference Between Soft and Hard Credit Checks

There are two types of credit check:

Soft credit check
This is an initial look at certain information on your credit file. Companies conduct soft searches to determine how successful your application would be, without conducting a full examination.

Hard credit check
Hard searches are complete checks of your credit report. Hard checks are recorded, and companies will be able to see when you’ve applied for credit. Too many hard credit checks can affect your score.

Which Companies do Credit Checks for Employment?

Below are some examples of companies that may conduct a credit search on you:

  • Banks and building societies
  • Utility companies
  • Estate agents and landlords
  • Mobile phone providers
  • Credit providers

Employers can also conduct credit searches, although they won’t be able to see the full report. In these cases, employers will only access the Public Information contained on your report, which is an example of a soft credit check.

Compare this to when you apply for credit, where your chosen provider will conduct a hard check.

A credit employment check won’t impact your credit rating. It simply serves as an audit footprint of your credit overview and who has accessed it in the past.

Why do Employers Conduct Credit Checks?

While the primary purpose of a credit employment check is to assess your financial stability, to prove that you’re able to pay on time, however, for employers, their aim is slightly different.

Employers want to ensure the following:

  • Your financial position won’t impact your performance in the proposed job
  • You don’t pose a risk when it comes to handling money or sensitive data
  • You aren’t susceptible to outside influence involving money (e.g. bribery, theft) if you are under financial pressure

The last point is particularly important for employers. If an organisation came across signs of bankruptcy, insolvency, County Court Judgements (CCJs) or evidence of money laundering, they could view this as a serious warning sign.

Even by only conducting a soft credit check, some organisations wouldn’t take things like late payments or defaults into consideration. Some employment credit checks won’t look at an applicant’s full credit history.

Each employer has its own criteria - and discretion - when it comes to offering a prospective applicant a position. Much the same how the decision lies with an individual lender to approve a credit application. But the severity and recency of this information will play a major part in the outcome.

But some employers may take a deeper look at an applicant’s financial situation, if, for example, they are applying for positions authorised and regulated by the Financial Conduct Authority (FCA). Or if they apply to work in government departments, law enforcement or security agencies. They may conduct hard credit checks as part of their recruitment process.

If you have any questions about background checks, speak to Eurocom CI today who can give you the relevant, up-to-date information you need regarding your position.

Credit Check Agencies

Here at Eurocom CI, we also support employers across different sectors - from financial to education - by conducting financial background checks on applicants. This includes AML checks, undeclared links, checks across the Financial Services Register or SMCR, as well as Sanction Search.

We offer a series of packages for our clients who require numerous checks carried out, on a regular basis. We give them access to their own secure system where they can manage and oversee all ongoing applications and relevant checks they need.

If your organisation needs something more bespoke, with different screening standards, speak to us today and we will see how we can help you.