Financial background checks are credit reports and checks that look into your financial health and history. Unlike traditional background checks given as part of a pre-hiring screening and look at your educational, employment, and criminal history, financial reports typically focus on your credit history and your experience with different finances, such as loans and mortgages. Our article tells you more about what exactly a financial background check is, and who might request this type of report from you.
What Is a Financial Background Check?
A financial background check is a type of background check that exclusively focuses on your credit report and financial history. These checks utilize your name, address, and Social Security number like a regular background check would, but they focus more on confirming and reviewing your financial details than looking at your criminal, educational, and employment history.
The items that may be included in a financial background check include the following:
- Unpaid loans
- Student debt
- Mortgages in your name
- Outstanding debt, such as medical bills over $500
- Bankruptcies
- Tax liens
- Your personal credit score
It’s important to note that financial background checks will only go back for seven years of history, with a maximum of ten years in certain circumstances. This adheres to the federal Fair Credit Reporting Act’s regulations, and you can expect any collections, bankruptcies, and other debts on your credit report to typically drop off around the seven-year mark, though these items can greatly affect your credit score throughout the seven years.
Why Are Financial Background Checks Important?
When looking over your financial background check details, an employer or another individual can determine if you are a good fit for a specific type of loan or mortgage, a career that is in finance or works with money, or certain rental and leasing agreements.
In many cases, rental agencies may review your debt and previous tenant history together to determine if you are qualified for the housing you are applying for, and a lender you are requesting a business loan from may check your credit report and previous loan history to see if you are reliable enough to lend to.
Financial background checks are more important than you might think, as they determine how eligible you are to receive certain types of financial assistance or secure a role in a financial career – employers want to be sure any employee they hire has a good history of credit, loans, and money management.
Who Might Request a Financial Background Check?
As we touched on above, the people who request a financial background check are employers or individuals willing to lend you something or rent to you. In addition to a potential employer, you may have a financial background check requested by a landlord, rental agency, bank, credit card company, or even a car dealership.
Will a Financial Background Check Affect My Credit?
When a financial background check is requested, whoever is requesting this information must inform you first and obtain your consent, though the specifics of this can differ depending on state law.
If your credit report and credit score are accessed during a financial background check, you may see a temporary dip in your credit score. If you have repeated access to your credit score caused by many different applications to various lenders, rental agencies, and credit card companies, this could be a potential red flag.
The exact number of points your credit score will drop after an inquiry depends on the kind of inquiry, the company, and your specific credit score. It usually takes a few months for your credit to return to normal.
Staying Informed of Your Financial Background
Financial background checks are essential credit reports, though some types of financial background checks may look more deeply into your financial history. It’s important to stay informed of your financial background and keep up to date with any changes to your credit report, as this helps you to catch errors that could potentially impact your eligibility for certain opportunities. We recommend using a free people look up and online credit reporting tools to stay informed of any changes to your report and prepare for the next time someone asks you to submit a financial background check.
