Credit Checks and Employment in the UK

A credit check allows employers to gain a full understanding of potential candidates and assess their financial standing. These credit checks play a crucial role in reducing risks and protect the interests of companies.

To learn more about the 10 most important background checks, click here.

Importance of Pre-Employment Credit Checks in Fraud Prevention and Assessing Financial Responsibility

The rise in popularity of pre-employment credit checks is due to their effectiveness in fraud prevention within companies. By assessing a person’s credit history and financial stability, employers can gain valuable insights into their trustworthiness, and responsibility. This information is significant for roles that involve handling sensitive financial data or having access to company funds.

A credit check provides employers with a glimpse into the financial habits and behaviours of potential candidates. It allows them to assess whether an individual has demonstrated responsible financial management. Conversely, a poor credit history might raise concerns about a candidate’s reliability and ability to handle financial responsibilities.

Financial difficulties don’t indicate a lack of trustworthiness, but they can shed light on an individual’s overall integrity and character. Evaluating how candidates handle financial challenges can provide employers with valuable insights into their resilience, and problem-solving skills.

It is important to note that credit checks must comply with legal regulations, ensuring privacy and fair treatment. Employers must obtain the candidate’s consent beforehand, and adhere to data protection laws.

Our software for employment background checks ‘Employment Check Pro‘ adheres to all relevant GDPR regulations and protects the candidate’s data. Find out more about Employment Check Pro

In this article, we discuss what a credit check is within the context of hiring and pre-employment screening/background checks.

What is a pre-employment credit check?

A pre-employment credit check is a type of background check employers use to assess the financial situation of a candidate. Typically, organisations in the financial sector use credit checks to mitigate any risks such as fraud. However, other sectors use this check, particularly for roles where the individual will be handling monies and/or financial data.

What appears on a credit check?

A typical credit check examines public and private databases for County Court Judgement, bankruptcies, voluntary arrangements, decrees, and administration orders.

A credit check will generate a report, which will show:

  • The candidate’s registration details (full name, date of birth, address)
  • Debts the candidate has and how much owed
  • If regular on-time payments are made
  • Bankruptcies and insolvencies
  • If a CCJ has been filed against the candidate in the last 6 years
  • If credit has been applied for recently

Who performs the credit checks?

The three major credit checking companies, commonly referred to as credit bureaus or credit reporting agencies, include:

Equifax: Equifax is one of the largest credit reporting agencies globally. They collect and maintain credit information on over 800 million consumers and 88 million businesses worldwide. Equifax provides credit reports and scores, as well as other credit-related services, to individuals, businesses, and financial institutions.

Experian: Experian is another well-known credit reporting agency that operates in various countries. They gather and manage credit information on millions of consumers and businesses worldwide. Experian offers credit reports, scores, and related services to help individuals and businesses assess their reliability.

TransUnion: TransUnion is a leading global credit reporting agency that operates in several countries. They maintain credit data on millions of consumers and businesses worldwide. TransUnion provides credit reports, scores, and other credit-related services to help individuals and organisations make informed credit decisions.

These credit bureaus gather information from various sources, such as lenders, creditors, and public records, to create comprehensive credit reports. It’s important to note that credit information may vary across these bureaus, as they receive data from different sources. It’s advisable to check your credit reports from all three bureaus.

Why do employers need to run credit checks?

For employers, a credit check performs two functions.

Firstly, credit checks acts as a fraud prevention measure. A candidate revealed to have bad credit may be more likely to commit fraud in the future. However, this does assume that a candidate with good credit is unlikely to commit fraud, which simply is not true. Employers will often couple a credit check with DBS (criminal record) check to get a fuller picture of the candidate.

Secondly, it allows companies in the financial sector to assess the quality of a candidate. For example, companies looking for a financial advisor, may not pick someone with bad credit as this indicates poor suitability.

Can an employment offer be withdrawn from a candidate with bad credit?

Pre-employment credit check primary function is not to provide information to qualify or disqualify a candidate. The primary aim is to understand what risks may be involved if the candidate is onboarded as an employee.

That said, a bad credit rating may disqualify a candidate if:

  • It affects their ability or suitability to perform the role
  • The organisation/employer are mandated by UK laws (meaning the employer cannot hire someone with a bad credit rating)

Employers will consider the state of the economy (Covid pandemic) and its effects on a candidate’s credit rating.

What can EBC Global do to help?

EBC Global offer pre-employment screening software solutions that help companies manage credit checks, criminal record checks, right-to-work, referencing, and more.

EBC Global provide background check solutions for all sectors and candidates across the world.

Our systems help organisations maintain compliance, and reduce the time associated with the hiring process by approximately 70%.

To learn more about Employment Check Pro, click here.

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