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Federal law allows employers to check credit reports, but only if the applicant consents. Some states, however, do not allow employers to check an applicant's credit or refuse to hire someone because of poor credit. In states that allow employers to check credit reports, employers generally comply with the consent requirement by asking all applicants to sign a written consent and submit it along with their employment applications. If you decide not to hire someone based on information in the credit report, you have to let the applicant know and explain his or her right to challenge the contents of the report. For more information on checking credit reports, school records, and other information on applicants, see Nolo's article Running Credit Checks on Job Applicants.
For a complete guide to your legal rights and responsibilities as an employer, read The Employer's Legal Handbook: Manage Your Employees & Workplace Effectively, by Fred Steingold (Nolo).