CREDIT HISTORY

A credit history is a record of an individual or company's past borrowing and repaying behavior. In the case of individuals, these records are collected and maintained by several large credit reporting agencies on behalf of companies that extend credit to consumers. These agencies gather and sell information about individual consumers, including whether a person pays their bills on time or has filed for bankruptcy. Whenever a bank, retailer, car dealer, or other business needs to decide whether to extend credit to a certain individual, they can access that person's credit history through the reporting agencies.

The Fair Credit Reporting Act (Public Law 91-508) is the federal law that gives individuals the right to examine their credit histories. It is designed to promote accuracy, fairness, and privacy of information in the files of every consumer credit reporting agency. There are three major bureaus that reports credit information for individuals: Trans Union, Equifax, and Experian. At an individual's request, these bureaus or agencies must provide the information in the individual credit file as well as a list of everyone who has recently requested the file. Individuals are entitled to one free report every twelve months upon request.

It is important for both individuals and businesses to have a solid credit history and to periodically examine their credit reports to protect that credit history. For an individual, beginning to establish a credit history might entail opening a checking or savings account, applying for credit card from a local department store, or taking out a small bank loan and making regular, on-time payments. A small business can obtain a favorable credit history in the same way. Credit issuers typically look at an individual or business's debt-to-income ratio to determine whether the borrower is a good or bad credit risk.

USE OF THE CREDIT HISTORY BY EMPLOYERS

For an employer, reviewing a job applicant's credit report may be a helpful step in pre-employment screening, retention, promotion, and even job re-assignment. Every employer has the right to review the credit history of all job applicants, as long a they have obtained a signed release from the potential employee for this phase of the background check.

In the past, employers were only concerned with a potential employee's credit history if they were going to handle money as part of the job. This is not longer true, however. The credit report is important to companies because it verifies the name, address, and social security number of the applicant and can provide prior addresses that can be used for more extensive criminal searches as well as cross-referencing employment information. According to Edward Niam in USA Today Magazine, the credit report also includes important information from public records, such as judgments, liens, collections, and bankruptcies. Credit reports provide a detailed history of payments, liabilities, and total debts and financial obligations. Employers should be aware that a heavy debt burden may lead to criminal behavior, including theft, drugs, prostitution, and violence.

According to research for the Society for Human Resource Management, reported in Fortune, only about 25 percent of U.S. employers bother to access a potential employee's credit history and background before they make a hiring decision. With personal bankruptcies at a record high, employers may want to access an employee's credit history to determine the cause of credit trouble. Human resource managers look at credit troubles that arose from causes beyond a person's control differently than they do having a large amount of debts due to reckless spending. The former may be due to a layoff followed by medical bills, and these may not be held against a potential hire if they can explain the circumstances and emphasize progress in paying the debts. The latter circumstances, however, may lead an employer to question a potential employee's overall judgment.

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