In today’s economic climate, employers often want to analyze applicants’ credit reports. A poor credit history may indicate problems that an employer would prefer to avoid. But using credit reports legally requires a thorough understanding of the various federal and state laws that can come into play in this area.

Fair Credit Reporting Act

A credit report is considered a “consumer report” compiled by a “consumer reporting agency” under the federal Fair Credit Reporting Act. Accordingly, special procedures apply when employers obtain and use such reports to evaluate applicants for hire as well candidates for promotion, reassignment, or retention.

The employer must notify the applicant/employee in a written stand-alone document (in other words, not within the employment application itself) that a consumer report may be used in the evaluation process. In addition to this notice, the employer is required to get the applicant/employee’s written authorization for obtaining the consumer report. The authorization may be provided on the initial “notice” document.