Credit and Financial Checks

While it’s tempting to think that our credit history has little or nothing to do with our employability or how we’re likely to perform in a job, plenty of employers may disagree.

In certain regulated roles, employers are legally obliged to check that an individual has no history of financial mismanagement, as this may preclude them from undertaking their day to day responsibilities. In other cases, employers may simply want reassurance that they’re not hiring someone who may represent a fraud or theft risk because their personal financial circumstances might lead them to act inappropriately.

With both scenarios in mind, the fact that someone’s personal circumstances may change after they’ve been hired, making them more susceptible to financial pressure and affecting their work performance, is often cited as a critical part of the justification for post-employment screening and monitoring. 

UK credit checks, for example, use the Electoral Roll to verify a candidate’s current and previous addresses. Using these, and working with established credit bureaus, we then look for evidence of bankruptcies, voluntary arrangements (IVAs), County Court Judgements (CCJs) or anything else that raises suspicions of someone’s previous financial dealings. It’s worth highlighting that this is not the same as checking someone’s credit rating; as that’s something that only lenders are able to undertake. 

Alongside this check, employers can also check whether an individual has ever been involved in civil litigation. Obtaining this information directly from civil court records, this can reveal details of judgements in the High Court, tribunals or the small claims court. In a few countries civil litigation searches will reveal all cases where the individual was involves as either a claimant or defendant.

One further, related check that’s often pursued is a directorship search. This establishes whether an individual is, or ever has been, a company director and whether they’ve previously been disqualified from being a director.

From an employer’s perspective, it is important to be aware of any directorships that someone holds which could represent a conflict of interest once they become an employee or a contractor. This is no longer a search that’s solely applicable to the more senior executive roles. With a growing number of people having a history of being self-employed, working as a director of their own firm, the potential for such conflicts can be greater than employers realise, especially if the employee has the power to make purchasing decisions on behalf of the business. 

In some countries, a directorship search will also reveal details of any shares an individual holds in other companies (again, another indicator of any potential conflicts of interest). In fact, the exact nature of many of these financial checks will vary from country to country. While some may confirm little more than details of bankruptcies and court rulings, others may have a far wider remit, revealing details of personal credit scores, missed payments, outstanding debts and unpaid charges, for example. 

Financial screening is just as important for acquiring new customers in the B2C arena as it is in the world of recruitment. Checks on an individual’s credit history and score are obviously vital for financial services businesses wanting to make a decision on someone’s creditworthiness. Whether wanting to green light a loan arrangement for anything from a new mobile phone contract through to a mortgage, lenders need to know how big a risk someone represents. In a fast-moving B2C world, speed can be of the essence here, which is why it’s important that such checks can be processed immediately

And finally, it’s worth remembering that credit checks can also be applied to businesses. This involves taking the kinds of checks that you would run on an individual but applies them to a corporate entity. Are they who they claim to be? Are they financially healthy? Are the banking and VAT details they gave you correct? These checks can form an important part of the due diligence undertaken on a potential new supplier. After all, the disruption that can be caused to your organisation by a struggling supplier who subsequently goes out of business could be considerable.