The importance of good credit health in background screening 

Written by
RMI Team (P)

Background screening is an essential part of the hiring process for any organisation. Verifying a candidate’s educational and professional qualifications, checking their employment history, and even screening their social media activity can ensure that the company makes the right hiring decision.  

However, why do companies also screen credit health? Is a credit screening necessary or legal in a pre-employment background check? We discuss the importance of credit health screening and how it can impact your hiring decisions. 

What is credit health, and how is good credit health determined? 

Credit health refers to the overall financial well-being of an individual, as reflected in their credit report. It encompasses various factors such as credit score, payment history, credit utilisation, and the length of credit history. 

According to Credit Counselling Singapore, good credit health is “an indication that you are a responsible and financially stable person. It also mirrors you as a reliable and trustworthy individual who honours contractual agreements”. 

Several factors contribute to good credit health, including making timely payments, maintaining a low credit utilisation ratio, having a diverse mix of credit accounts, and avoiding excessive credit inquiries. These factors collectively demonstrate an individual’s financial responsibility and reliability to creditors and lenders. 

The role of credit health in background checks 

Employers consider credit health part of the background screening process to assess a candidate’s financial responsibility and trustworthiness. It provides insights into how an individual manages their financial obligations, which can indicate their ability to handle job responsibilities and make sound decisions. 

A candidate’s credit health can reflect their level of responsibility and reliability, demonstrating their ability to meet financial commitments and obligations. Employers often view strong credit health as a positive attribute that aligns with the traits of a dependable and trustworthy employee. 

Balancing credit health with other qualifications and skills 

While credit health is a valuable consideration in the hiring process, balancing it with other qualifications and skills relevant to the job role is essential. Employers should assess credit health with the candidate’s experience, expertise, and cultural fit within the organisation. 

Studies have explored the correlation between credit health and job performance, indicating that individuals with strong credit health may exhibit lower financial stress and higher productivity in the workplace. A 2018 study by Fidelity found that poor financial wellness – including bad credit – led to higher absenteeism rates and lower productivity. 

However, employers should be mindful of potential biases when using credit health as a screening criterion, as certain financial hardships or circumstances may impact an individual’s credit report. It’s important to consider mitigating factors and provide candidates with the opportunity to provide context or explanations for any adverse credit history. 

Are credit health checks legal in Singapore? 

An individual in Singapore may wish to obtain their credit health report through agencies like Credit Bureau (Singapore). Access to this information requires the use of an individual’s SingPass. But are such credit checks by companies necessary or legal? 

Some people have voiced concerns about credit health screenings in Singapore, and this issue was raised in a Straits Times Forum submission in 2019, questioning the need for such checks due to relevance and data privacy issues.  

In response, the Monetary Authority of Singapore stated that it is “entirely appropriate” for such checks to be performed and that these due diligence checks are for ensuring that potential employees are “fit and proper” based on MAS’s Guidelines on Fit and Proper Criteria. In addition, these checks are not in breach of the Personal Data Protection Act 2012 (PDPA) as consent would have to be provided by the individual and are “considered an appropriate purpose in the context of employment where financial soundness is required”. 

Financial health screening for your candidates 

Credit health plays a significant role in background screening and can provide valuable insights into a candidate’s financial responsibility and reliability. By understanding the importance of credit health and employing fair and compliant practices, employers can make informed hiring decisions that contribute to the overall success of their business.  

Contact us today to learn more about how our financial health screening can lead to better hiring outcomes and help you ensure that your candidates meet your organisation’s requirements.