What is a credit check?

An employment credit check allows an employer to review parts of a candidate’s financial history, typically as part of a broader background check. These checks are more common for roles in banking, accounting, government or other industries where employees manage money, handle sensitive financial data or have access to company funds.

In Canada, two major credit bureaus, Equifax and TransUnion, provide employment credit check services. These reports contain details such as payment history, outstanding debts and bankruptcies. They do not include credit scores or account numbers, helping to protect personal privacy. Employment-related credit checks are soft inquiries, meaning they don’t impact the candidate’s credit score. Employers only conduct a credit check after extending a conditional job offer. You also require written consent from the candidate before accessing their report.

What employers can see in a credit check

An employment credit report typically includes:

• when the applicant opened their credit accounts
• credit utilization and payment history
• missed payments, defaults or accounts in collections
• bankruptcy records or liens
• outstanding debts and available credit
• closed bank accounts
• judgments or legal actions
• records of who accessed the candidate’s credit

While the report reveals patterns in financial behaviour, it does not include the individual’s actual credit score or personal details like SIN or birthdate. These limitations help prevent misuse of personal data while still offering insight into financial responsibility.

How employment credit checks work

To initiate a credit check, the employer must first notify the candidate in writing and obtain their written consent. The employer then requests a report through a credit bureau or background screening service. In Canada, this is governed by privacy laws, such as the Personal Information Protection and Electronic Documents Act (PIPEDA), and employers must ensure that they securely handle the data.

Typically, only authorized HR or hiring professionals have access to the credit information. Employers also store reports securely and delete them after they no longer need them. If a hiring decision is influenced by credit information, the employer documents why and informs the candidate of the decision.

Industries where credit checks are common

Various sectors use credit checks where financial accountability is critical. Common examples include:

• Banking and financial services: Positions such as account managers, financial advisors or loan officers involve direct handling of money or client accounts.
• Government roles: Especially those requiring security clearance or access to public funds.
• Law enforcement and security: Police services and private security firms may review financial history as part of their background screening process.
• Accounting and payroll: Bookkeepers, accountants and payroll coordinators often manage budgets, invoices and tax filings.
• Insurance and real estate: Professionals who handle client trust accounts or financial transactions.
• Retail and hospitality management: Managers who are responsible for cash, deposits or budgeting.

In these roles, credit history can serve as a risk management tool, offering insight into how candidates handle their finances and whether they may be vulnerable to fraud or financial pressure.

Benefits of checking an employee’s credit

Credit checks are typically one aspect of a background screening process, which may also include criminal records checks, employment verification and reference checks. There are several reasons Canadian employers may conduct credit checks:

• Assessing financial reliability: A clean report with consistent payments may indicate responsibility and trustworthiness.
• Preventing fraud or theft: Employees with poor credit may be considered at higher risk of committing financial misconduct, especially if the role involves access to funds.
• Fulfilling regulatory requirements: Some government or industry bodies require credit checks for specific licences or clearances.
• Evaluating suitability for financial roles: For positions managing payroll, budgets or audits, past financial behaviour may be a relevant indicator of capability.

Drawbacks and risks of credit checks

Employers should consider whether the role truly requires a credit check and ensure all hiring decisions comply with human rights and privacy legislation. Despite their usefulness, credit checks are not always the best tool, and may come with risks, such as:

• Misinterpretation of data: Many human resources employees or recruiters lack training in understanding and analyzing the data they extract from credit checks. While they can identify numbers and outstanding red flags, they may not know how to interpret the data effectively, rendering the report ineffective.
• Outdated or inaccurate reports: Credit reports may contain errors or outdated records that misrepresent a candidate’s financial status.
• Privacy concerns: Many candidates view credit checks as intrusive, especially if they did not know about them upfront. Some professionals may also prefer to keep their personal financial records private and may not feel comfortable sharing all of this data with a new employer.
• Unfair screening: Credit history doesn’t always predict job performance. A candidate with a rough financial past might still be highly qualified.

Legal requirements for credit checks in Canada

Canadian employers must follow provincial and federal privacy laws, including PIPEDA. These laws govern the collection, storage and use of personal information. Before conducting a credit:

• Get written consent from the candidate.
• Disclose what you will check and why.
• Ensure you store the data securely and delete it after use.
• If declining a candidate based on credit information, provide them with a copy of the report and an explanation.
• Avoid using credit checks as the sole basis for a hiring decision, as doing so may violate employment discrimination laws or fair hiring practices.

Tips for employers conducting credit checks

If you decide to include credit checks in your hiring process:

• Train HR staff to interpret credit reports properly.
• Apply credit checks consistently across similar roles.
• Offer candidates a chance to explain their credit history.
• Use a third-party background screening company to ensure secure handling.
• Document all hiring decisions to support transparency.

When credit checks aren’t necessary

Not all positions require access to sensitive financial data. For most roles in creative, customer service, trades or technical fields, a credit check may be unnecessary and even counterproductive. Overuse of credit screening can limit your talent sourcing, discourage applicants and introduce legal risks if not applied fairly.

Consider whether the financial risk of the role justifies this level of screening. If not, you may be better off focusing on skills-based hiring and evaluating a candidate’s work history and references instead.

Credit checks and hiring transparency

A transparent hiring process builds trust and improves the candidate experience. It also reduces the risk of misunderstanding or legal complaints later on. If you plan to run credit checks:

• Inform candidates early in the process.
• Explain why the credit check is relevant to the role.
• Clarify what information you will and won’t review.
• Provide contact information if candidates have questions.

Credit checks can be a helpful hiring tool, but only when you use them responsibly. Employers ideally weigh the benefits against the risks and ensure all policies align with Canadian privacy laws. Transparency, fairness and proper training can help employers use credit reports appropriately.