Fixing Your Credit History
Credit checks have long been standard procedure when screening for tenancy, insurance, or new lines of credit. However, more and more employers are now using credit checks as part of pre-employment background checks. While this is a controversial topic, it is possible that negative information on a credit report could be used against an individual in the hiring process. Still, there are regulations in place that stipulate how this information must be requested, used, and disclosed.
Fair Credit Reporting Act (FCRA)
The Fair Credit Reporting Act (FCRA) regulates the collection, dispersal, and use of consumer credit reports, including credit reports used for pre-employment or tenant background checks. Some of the key requirements of this legislation specify that employers, landlords, and lenders must:
- Receive a written release from the applicant. This release must be received in writing as acknowledgement that the applicant understands a credit report will be pulled and any negative information found on that report may be used against them.
- Disclose the results. If any information on a credit report results in negative consequences, such as not being hired, this information must be disclosed to the applicant, typically in the form of a pre-adverse action letter.
- Provide the applicant with a copy of the results. If any negative consequences result from an applicant’s poor credit history, they must receive a copy of the report. This should also clearly state the agency that provided the negative information. Applicants must then be given a reasonable amount of time to respond or correct any inaccurate information.
- Comply with all other FCRA regulations. If a company willfully fails to comply with the rules outlined under the Fair Credit Reporting Act (FCRA), they could owe up to $1,000 to the consumer.
Employers should also note that while bankruptcy can show up on an applicant’s credit report, this information cannot be used to disqualify someone from employment as mandated by the Federal Bankruptcy Act.
An Applicant’s Right to Correct Inaccurate Information
A large number of consumer credit reports do in fact contain errors. Therefore, if any red flags are raised during the screening process as the result of negative information on an applicant’s credit report, the individual must be given the opportunity to respond and take action to correct any mistakes. If any information has been misreported, applicants are encouraged to:
- Contact the credit bureau directly. The major consumer reporting agencies are Experian, TransUnion, and Equifax. The copy of the report supplied to the applicant must list which agency provided the negative information. Applicants may then file a dispute directly with that agency.
- Contact the lender or other account administrator. Sometimes going directly to the company that reported the information to the credit bureau is also an advisable course of action. This ensures the mistake is being investigated on multiple fronts.
Please note, the process of correcting misinformation on a credit report can be a lengthy and tedious process. For this reason, it is up to the discretion of the employer or landlord whether or not they choose to hold the negative information against the applicant. In some cases, applicants may submit a written explanation of the circumstances surrounding the negative report. This information can be used how the employer, landlord, or lender sees fit. However, negative information on a credit report is often less likely to be ignored if an applicant is seeking a new line of credit, resulting in rejection or higher interest rates.
Every individual is entitled to one free annual credit report. This allows consumers to review their record and screen for any inaccurate information. While not everyone takes advantage of this service, it is an important any applicants who have negative information turn up on their report, accurate or inaccurate, know about their right to access this information themselves.