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Using Credit and Consumer Reports to Protect Your Small Business Interests

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Using Credit and Consumer Reports to Protect Your Small Business Interests

By Caron_Beesley, Contributor
Published: May 12, 2009

Background information checks are a critical tool that many small business owners can use to evaluate and exercise due diligence before they engage in a business relationship - with customers, clients and even potential employees.

One of the key background checks employed in the United States is the consumer report (also referred to as a consumer credit report), which contains information about an individual’s personal and credit characteristics, character, general reputation, and lifestyle.

Why Use Consumer Reports?


Whether you are an employer looking to conduct pre-employment checks, a landlord needing to assess prospective tenants, or you operate a diligent sales organization that extends credit to customers, you may need to turn to consumer reporting agencies (CRAs) to help evaluate individuals with whom you are about to engage in a business relationship.

While consumer reports are not the be all and end all in terms of character or business references, they can provide insight and suggest potential 'red flags' that may make you more diligent in your pre-screening process.

The government has put strict guidelines in place - designed to protect the privacy of the individual - that dictate how businesses should use, disseminate, and dispose of the information contained in consumer reports.

As a small business owner, it’s worth taking the time to understand what consumer reports are available to help you protect your interests and assets - while operating within consumer protection law.

Using Consumer Reports - What You Need to Know

If you seek access to consumer information from a consumer reporting agency you will need to observe your responsibilities under the Fair Credit Reporting Act.

Under this Act, each CRA must notify you of your obligations but it’s worth understanding in advance what you can and cannot do with the information that they provide.

Below is an overview of what you need to know about using consumer reports for your particular business need. To understand what you must do to comply with the Fair Credit Reporting Act for each of these uses, Business.gov offers a point-by-point guide for small businesses here.

  • Using Consumer Reports for Pre-Employment Screening - According to the Federal Trade Commission, as an employer, you may use consumer reports when you hire new employees and when you evaluate employees for promotion, reassignment, and retention - as long as you comply with the Fair Credit Reporting Act (FCRA).
Employers often do background checks on applicants and get consumer reports during their employment. Some employers only want an applicant's or employee's credit payment records; others want driving records and criminal histories. For sensitive positions, it's not unusual for employers to order investigative consumer reports - reports that include interviews with an applicant's or employee's friends, neighbors, and associates. All of these types of reports are consumer reports if they are obtained from a CRA.
  • Using Consumer Reports for Screening Potential Tenants - Landlords can use consumer reports to evaluate rental applications - as long as they adhere to the Fair Credit Reporting Act. The Act requires landlords who deny a lease based on information in the applicant's consumer report to provide the applicant with an 'adverse action notice.' The Federal Trade Commission explains how consumer reports can be used by landlords and offers clear guidelines for how to comply with the Fair Credit Reporting Act provisions here.

  • Using Consumer Reports for Underwriting Insurance Policies - As an insurer, you may use consumer reports to underwrite insurance policies and to screen high-risk applicants - as long as you comply with the Fair Credit Reporting Act.These requirements can be found here.

  • Providing Information to Consumer Reporting Agencies - If you provide information about an individual to a consumer reporting agency, there are rules and guidelines governing the accuracy of the information you provide them. Consumers do have the right to register a dispute with a CRA if they doubt the accuracy of the information you may have provided about them. If you furnish information to a CRA, your responsibilities within the law are explained by the Federal Trade Commission here.

  • Disposing of Consumer Credit Information - With identity theft and fraud on the rise, a new 'Disposal Rule' has been introduced to govern the proper disposal of information in consumer reports and records. Learn how to comply with this rule here.

If you have questions about using consumer reports you can contact the Federal Trade Commission directly here.

Additional Resources

About the Author:

Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

Comments:

Credit reports are an essential source of information when screening potential tenants for your rental property business and without this you can find yourself with many avoidable costs. Do make sure that you complete all of the checks and take note of the results.
This is a great way to avoid or reduce the potential for bad debts and to ensure that you get paid for the goods or services your business provides. Running these checks costs very little and save you a lot of money in the long run.
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Potential Tenants - Landlords can use consumer reports to evaluate rental applications - as long as they adhere to the Fair Credit Reporting Act. The Act requires landlords who deny a lease based on information in the applicant's consumer report to provide the applicant with an 'adverse action notice.' The Federal Trade Commission explains how consumer reports can be used by landlords and offers clear guidelines for how to comply with the Fair Credit Reporting Act provisions Criminal Justice degree

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