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What Is the Importance of Employment Credit Checks?

Why background screening is important for job applicants

Employees are one of the biggest factors to contribute to a business’ overall productivity and growth. In the common practice in current day context, employers conduct background checks and reference checks to ensure that they only hire and retain quality talents. This is an effective way to safeguard the company and other existing employee’s interest by doing pre-employment screening to reduce the risk of making a bad hiring decision.

Life for people in today's world is far different than it was a decade ago. Advancements in smart technology and the push for digitizing various manual processes have revolutionized consumer experiences in Singapore. Now, individuals can conveniently apply for credit facilities or obtain additional loans without the need to physically visit a bank.

The application process has been streamlined to the point where it's as effortless as a tap on their mobile app, and approval from the bank can be obtained within hours or even seconds. However, with such seamless access to credit and loans, there's a heightened risk of inadvertently hiring candidates facing financial hardship.

Why credit report plays a part in background screening

A credit report is a comprehensive record of a person’s credit payment history compiled from different retail banks and major financial institutions. Credit Bureau Singapore (CBS) collects these credit data amongst its participating members.

An employer is able to make use of the credit report to assess a potential candidate’s financial standing and criminal records (if any). The employer can also refer to some indicators that are available in the credit report to assess the candidate’s creditworthiness such be: account repayment history, number and types of previous enquiries, default records, bankruptcy order, credit score etc.

By incorporating credit report as one of the background screening tools can help the employer to make well informed hiring decision. For instance, bad debt records can be easily recognised through the credit score as displayed in the credit report or through other indicators like unsecured outstanding balances and default records. Candidates who have bad debts records can hint or help the employer to deflect against future misconduct or in the worst-case scenario, committing a malicious act which will be detrimental to the company’s reputation. Whereas on the other hand, a potential hire who is able to show that he is financially stable through his credit report will boost hiring confidence and portray a more trustworthy and reliable image.

Credit Bureau Act and Importance of Individual’s Consents

The Credit Bureau Act 2016 subjects Credit Bureau (Singapore) to formal oversight by the Monetary Authority of Singapore (MAS). The Credit Bureau Act 2016 provides the legal framework on the regulation of credit bureaus and the credit reporting business, including the collection of customer credit information from banks and financial institutions in Singapore. Only Credit Bureau (Singapore) Pte Ltd and its Approved Members can have access to a consumer's credit report. The purpose for such access is restricted to the assessment of credit-worthiness of the consumers, and further disclosure to any other person is prohibited.

CBS is allowed to disclose an individual’s credit report to approved companies with proof of the individual’s consent and authorization. Without consent, accessing this data would be a violation of privacy. These consents ensure that individuals are aware of who is accessing their credit report and for what purpose. This transparency is essential for maintaining trust and fairness in financial transactions. Obtaining consent helps protect against identity theft and fraud. If access to credit reports were granted without consent, it would be easier for malicious actors to misuse individuals' financial information. Consent empowers individuals to control who can access their credit report and for what purposes. This control is essential for maintaining autonomy over one's financial information. Consent ensures that access to sensitive financial data is obtained ethically and responsibly.

In Summary

Though it is a not a mandatory requirement, it is common to include a credit report check as part of the onboarding process when evaluating a potential hire, particularly considering the sensitive nature of the role. In fact, CBS has also noticed increasing interest from companies from different types of industries enquiring on the credit report for employment screening purpose.

In fact, it is commendable to incorporate credit report check as part of the hiring process to ensure the right hire has been made for the job. In addition to onboarding checks, numerous companies are now implementing annual credit report reviews for their employees to periodically assess their financial stability.

Follow and like CBS Facebook and Linkedin page for more useful content and tips to maintain a good credit score or visit the CBS’ website to get a copy of your credit report.

If you are facing increasing difficulties servicing payments to your credit cards or other unsecured credit facilities, consider attending our weekly Debt Management talks (conducted both over Zoom and in-person at our office), where you will learn more about what to do, when and how to communicate with creditors, what are the common collection actions creditors can take, what are the various debt settlement options are and what is the CCS Debt Management Programme. Click here for schedule.

After attending the talk, you can submit a request for one-to-one credit counselling. Details on the counselling session and instructions on how to arrange for an appointment will be explained during the talk.

Published 8 March 2024.