Employers generally perform background checks on job applicants. But can you request credit reports when hiring new employees? What about when evaluating employees for promotion or reassignment?

The answer is yes, so long as you comply with the Fair Credit Reporting Act (FCRA). The federal law regulates the acquisition and use of credit information and spells out your responsibilities when using consumer reports for employment purposes.

Requesting credit payment records is particularly common when hiring for sensitive positions, such as those that involve access to money. In fact, you should always consider a credit check if the position is management level or involves handling cash or managing the books. A credit check can reveal how candidates manage their own finances and determine whether any applicants are under financial pressure, which could lead to poor on-the-job decisions.

However, the law protects consumers’ privacy rights, too, and employers must have legitimate reasons before diving into credit scores. Running a credit check that isn’t aligned with the responsibilities of a job description can be considered inappropriate or discriminating.

Here are three key issues to keep in mind before using an individual’s credit history.

You must secure authorization beforehand.

Before obtaining a credit report for employment, reassignment, or job promotion, the law requires that you notify the individual in writing that a report may be requested and that you receive the individual’s written permission to do so.

Credit reports aren’t always accurate.

According to some estimates, only one out of every five credit reports is error-free. Considering the widespread inaccuracies and the growth in identity theft, employers should strive to get behind the data for the full story before making final employment decisions.

When requesting a more detailed consumer report – one that includes personal, lifestyle, and credit characteristics – the Federal Trade Commission recommends that you request reports prepared by a consumer reporting agency (CRA), a business that assembles such reports for other businesses. Doing so will further ensure that your obligations under FCRA are covered.

You must provide written notification of adverse action.

Before you deny employment, reassign or terminate an employee, or deny a promotion based on credit history or consumer reports, you must first notify the individual. This action includes providing the individual with a copy of the credit reports along with a summary of the employee’s rights under FCRA.

After you’ve taken an adverse action, you must give individuals the name, address, and phone number of the agencies that supplied their credit reports. You must also inform individuals that they have 60 days in which to dispute the accuracy or completeness of their credit report information.