Limits Of Credit Checks Case Study Examples

Published: 2021-06-22 00:13:06
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During the application for credit of any nature from an individual or a financial institution, they have the permission as provided by the law to confirm the borrower’s credit record. The main aim of having such checks on credit checks is to know the borrower credit rating in order to determine whether the borrower is entitled to be given the credit (Schmitt, 2012). Therefore, the report that is obtained from the scrutinized credit check is vital, as it is part of the discovery process. In the process of confirming that the information in the credit checks are clean, then loan providers are permitted to give loans to borrowers, but in case the information shows some credit outstanding, then loan providers may decline to offer any loan serviceability.
After ensuring that all the information contained in the credit checks permits someone to access loans, the moneylenders must pass other test before these loans are given. For instance, after the credit checks are approved and signed, they go through interviews, where applicants are asked some personal questions relating to their income, liability and assets. All these information are used in determining you accessibility to such loans (Megginson & Smart, 2008). Consequently, even with having credit checks with no out standings, failure in the interviews leads to the rejection for accessing the loans but mostly, loan borrowers always depends on the credit checks. Hence, credit checks are the main determinants in accessing loans in most financial institution.
The Effectiveness of Credit Checks based on:
- Reliability
The reliability of credit checks are of great importance to both the loan provider and the borrower. For instance, credit report helps loan provider obtain insight information on the reliability of the people they work with, information that helps in making vital financial decisions (Schmitt, 2012). While it helps, the clients to perform company credit check to know some risk information about the loan provider that would make borrowers to make prompt decision on the company to seek their loans.
- Validity
Using credit checks, employers have the opportunity, through their Human Resource Management Department, to high potential members of an organization. This is done through checking the information that is contained in the credit checks during recruitment (Megginson & Smart, 2008). On the other hand, it helps borrowers to obtain loans from various financial institutions, as they act as loan guarantees for customers with non-outstanding credit checks.
- Ability to Generalize Results
In the process of approving loans by the loan providers to their clients, it always a routine for these loan providers to perform credit checks for their customers. In many occasions, failure in the first step, the verification of the credit checks, customers will automatically disqualified from accessing any loan if their credit checks shows some outstanding (Schmitt, 2012). Hence, they will not go through other processes like interviews. Therefore, they are the determinants for results and decisions of the loan providers.
- High Utility
Although credit checks acts as the determinants of accessing loans from various financial institutions, it does not contain some of the information that may block your acceptance for the loans. For instance, credit checks do not show the information on the salaries of the clients; therefore, even low earners without outstanding are entitle to loans (Megginson & Smart, 2008). Moreover, even in insurance payment that use your credit score to insure you, will not provide such information to the bureaus, hence, they are secure.
- Legality
The obtaining and use of the credit checks are within the law, making these credit checks to be legal. For instance, before any organization performance any credit checks to any of their clients, the law for the organization to get permission from the client requires it (Schmitt, 2012). Therefore, they cannot perform any credit checks without the permission of their clients. Moreover, the operations of credit checks is within the law and clients are advised to review their screening their policies and procedures in order to ensure their organizations comply with the requirements, therefore, the process is illegal.
Jobs Recommended for Credit Checks Selection Methods
There exist different ranks within any organization based on various departments. Therefore, it is recommended that jobs that deals with management such as managers of different departments need to go through credit check selection methods. This is important because most of their activities are influenced by various calculation and handling of the organization finances (Megginson & Smart, 2008). Therefore, it is believed that persons with better credit checks information, credit checks without outstanding, are in better position of safe handling of companies finances. On the other hand, it is believed that people with poor credit checks information are poor handlers of financial handling. Apart from the managers are the supervisors, as they will also involve in handling of some minor calculations. Consequently, they also need to go through credit checks during their recruitment into the organization.
Jobs that may not require Credit Checks Selection Methods
On the other hand, it not mandatory for any job applicant to undergo credit checks selection method. For instance, some of the casual workers within an organization need not to undergo such selection as their spending do not affect the operation of the organizational financial control. In most cases, they will not be linked to any financial control (Schmitt, 2012). Therefore, in the process of recruiting such workers, they only require the interview part of the recruitment in order to determine their legibility towards the operation of the organization. Moreover, they also need orientation on the activities of the organization. Consequently, performing any credit checks to these employers would not have effect to the organization.
Other Forms of Selection Methods
Apart from performing credit checks to employees during their recruitment in determining their illegibility to perform within an organization, there are other forms of selection methods that can be performed to recruit an employee. For instance, one of the best selection methods is provision of sample lob tasks. Through the provision of sample job tasks, employers are in the position to determine the degree at which an individual seeking to be a member of the organization can perform (Schmitt, 2012). Another selection procedure that can be performed during job applicants is the criminal background checks, which provide information on the applicant past records. For applicants with criminal records, they need not be recruited as they may involve in such as reducing the operation of the organization. While the last section procedure is the performances check of the applicants based on the past records. Therefore, applicants with better past record performances may be considered for such positions as compared to applicants with poor performance (Megginson & Smart, 2008). Hence, in the absence of the credit checks selection method, the above methods can act as the best selections methods.
Schmitt, N. (2012). The Oxford Handbook of Personnel Assessment and Selection. Oxford: Oxford University Press.
Megginson, W.L. & Smart, S.B. (2008). Introduction to Corporate Finance. London: Cengage Learning.

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