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Understanding Financial Background Checks: Everything You Need to Know

If you’re considering applying for a job or renting an apartment, chances are you’ll undergo a financial background check. This process is a crucial element for employers and landlords to evaluate your worthiness to be entrusted with important responsibilities or lease agreements. That said, what exactly is a financial background check, and how do you go about conducting one? What financial records are typically assessed in this process? In this article, we’ll provide answers to these questions and more.

Firstly, a financial background check is a process of assessing an applicant's creditworthiness, financial history, and present financial standing. Financial background checks are most commonly required for job applications, rental applications, and financial service applications. Employers and landlords typically perform these checks to ensure that applicants have a consistent history of being responsible with their finances, and that the applicant is not at risk of creating further financial issues or complications.

What is included in a financial background check?

An extensive financial background check will review several financial records, including credit reports, employment records, tax returns, bankruptcy filings, and criminal records. These records are used to analyse applicant's financial behaviour, their ability to adhere to credit obligations, and ultimately determine their suitability for a position or a lease agreement.

Credit reports

One of the most important records reviewed in a financial background check is an applicant's credit report. This report provides a comprehensive history of the individual's credit card usage, loan history, and debt repayment history. The credit report includes details of how much debt an applicant has, the number of credit lines they have, their on-time payments, and any missed payments, balances in collections and outstanding loans.

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Employment records

Employment records generally include payroll or tax records, which will show an applicant's income and their duration of employment. Employment records are largely important for rental applications, as landlords often require a certain level of income to be proven in order to secure a lease agreement.

Tax returns

Tax returns are reviewed to verify salary and other income, as well as any income tax payments or refunds. This helps the assessor verify whether an applicant is truthful about their income, and whether they are capable of making rent or loan repayments.

Criminal records

While non-financial records, criminal records may still be included as part of the check, and can be significant red flags for landlords or employers. Criminal records can show if an applicant has committed fraudulent or financial crimes such as embezzlement or identity theft, and may give insight into an applicant's trustworthiness.

How is a financial background check conducted?

A financial background check is conducted by professional background screening companies. These companies have the technology and expertise necessary to request, review and analyse the financial records mentioned earlier. These companies are often approved by governments and other regulatory agencies, and are known for their accuracy and reliability.

Normally, the applicant must provide their consent for the screening to occur, and the screening company will then request information from financial institutions, payroll providers, tax offices, and other relevant sources pertaining to the financial records to be assessed. Because this process is sensitive, the screening company will deal with all of the applicant's data discreetly and will follow all necessary data protection protocols. The screening process can take anywhere from a few days to several weeks.

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Final thoughts

In summary, a financial background check is an important tool for landlords and employers to ensure that applicants have a reliable financial history and will be a good fit for the responsibilities required of them. The financial records reviewed in a background check include credit reports, employment records, tax returns, bankruptcy filings, and criminal records. Professional screening companies conduct these checks, with the applicant's consent, and the results are often used as a key determinant when assessing an applicant’s eligibility for a lease agreement or employment.

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