Tuesday 1 November 2011

Using Credit Histories for Employment

The Wall Street Journal story "Next Frontier in Credit Scores: Predicting Personal Behavior," tells how credit report companies are developing new numerical predictors. The company Fair Isaac developed the FICO score which is a standard predictor of whether someone will repay loans. They are now developing products such as the Medical Adherence Score that tries to predict whether someone will take the pills they've been described without needing a reminder. The data collected for one purpose are increasing used for others. The story says:
About 60% of employers check credit histories of some or all prospective hires, according to a 2010 survey by the Society of Human Resource Management....

A credit history may have hurt Deborah Aston, who managed the city-owned parking lot at the Eugene, Ore., airport from 2006 to 2010, after the city hired a new company, Republic Parking System, to run the lot. Republic required a background check for employees who wanted to keep their jobs.

Ms. Aston, who had filed for bankruptcy in 2009, wasn't re-hired. She said a Republic manager initially cited her bankruptcy filing, then later told her she had a poor attitude. She filed a complaint under an Oregon law that took effect in July 2010, limiting employers' use of credit information.

Should companies be allowed to use credit histories in deciding which job candidate to hire?

17 comments:

  1. Basing an individual’s credibility on private expenditures may lead to biased and false judgments by the employers. In this scenario, the manager seems to base Deborah’s “poor attitude” on her bankruptcy claim which is a false heuristic.

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  2. Maximilian Roedder2 November 2011 at 12:01

    In my opinion, employers should be allowed to use the credit history in deciding which job candidat to hire. This might help the employer find out how reliable and responsible a candidat is. Furthermore, it decreases the information asymmetry between the employer and the candidat and, therefore, should lead the employer to choose the most suitable candidate.

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  3. I agree with Max, with regards to being able to judge a potential candidate to hire based on their credit history. It is a way to test one's reliability and possible worth to the company.

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  4. It's true that credit scores can tell an employer about how responsible and reliable a candidate is. However, much like with a student's GPA or a company's earnings, people tend to fixate on these numbers and disregard the circumstances that might have led to less-than-stellar results or other promising qualities about the individual. Additionally, credit scores seem to me to be somewhat of a personal/private nature. Using them could lead to discrimination. For example, what if Ms. Aston did really well managing the airport parking lot while she was there? I would hope that the company would evaluate her on her past performance, rather than her financial situation.

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  5. I do not know if potential employers research the context of your credit score, and to what extent. Given the current economic environment, I wonder if companies will begin to look more into the numbers...

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  6. For the most optimal hiring human judgment should be removed from the equation as much as possible. It is a great idea to use credit histories and other statistically valid indicators for hiring. In the future, instead of having an HR department firms will simply have algorithms programmed to separate the riff raff from the most productive candidates. The cost savings alone will make the effort worth it, most especially for low level positions (but extending to more complicated positions as algorithms and data collecting advance).

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  7. As mentioned in the initial post, these kind of "qualifications systems" are used in a variety of contexts. Whether it is submitting your report card to get lower rates for car insurance or having your credit scores take a deciding role in whether or not someone hires you, how the information is used is most important. As mentioned above, knowing such things does close the information gap between employer and employee, but I feel that this information should not be the "deciding factor". It should be considered, but an employer should look at all things more relevant to the person's competency and eligibility for the position.

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  8. Given today’s sensitive economy, it appears that employers are constantly finding new reasons to justify workplace reduction. While it’s undeniable that credit history is very indicative of an individual’s personal financial situation, whether it directly affect an individual’s work performance probably varies depending on their occupation as thus, should be gauged accordingly.

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  9. Using credit scores as a basis for hiring should largely depend on the industry and more so the specific job a worker is being hired for. It would make sense that a worker hired for an accounting or financial management position should have sound financial planning skills in their personal life. Yet even from there, it should be used as one part of a whole candidate profile. Not doing so may result in companies missing out on talent that have poor credit scores for other reasons.

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  10. A firm needs to trust their employees, and they need to make sure their intentions are good. There is no reason to fire someone based on their personal finances if they have proven to maintain a solid track record at their job. If a candidate is being considered for a position, I would think their credit history does not matter. Personal spending is different from spending a given budget. Does poor personal finance management sit in the same category as a smoking habit, poor eating habits, or relationship problems in that they come from emotional/physical judgments? To what extent do these affect job performance? Do the triggers that cause these show up at work?

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  11. I think credit history is a good reflection of responsibility. But it shouldn't be overused. Reference of former employer, resume, assessment center results are still supposed to be main techniques to select candidates. People with bankruptcy history are not necessarily unreliable. Everyone has his own sad story. Discrimination is the worst case that may happen. It makes them even harder to get though the difficulties. In a word, I agree to include credit history to do partial judgement, if employers can take it rationally.

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  12. The questions borders on another topic which is how much private information should be available to employees. I think its hard to tell, however, if a credit rating would indicate a good hire. People could have poor credit ratings because they are unemployed, not because they are irresponsible.

    There is a benefit to being able to see credit ratings though. If a possible employee runs up huge credit card bills, or is irresponsible in paying them back, then it is just another sign to a company that the employee could be the same way on the job.

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  13. Companies and other employers are coming up with more and more excuses to justify the cutting of working positions. I don't think a person's credit score reflects their work ethic at all. As a student paying her own way through college and in debt, I find this appalling and scary for the future. I think that a link between credit scores and worker unemployment is bias.

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  14. It seems that some employers, at least, think credit history tells something about whether someone will be a good employee. I wouldn't want to second-guess their hiring by denying that, since they know more about their business than I do. The hard part is deciding for your own business whether credit histories are useful extra information or not.

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  15. I think it is perfectly reasonable to use credit histories for hiring decisions. It is very difficult to ascertain information about a candidate based on pieces of paper (applications, resumes etc.). Seeing how someone handles their money is a very indicator of how responsible they are.

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  16. I agree with the general impression that credit histories, contingent firing/hiring decisions and their fairness are case-by-case. In some cases I realize that it gives employers and idea of whether a prospective employee or current employee applies proper discretion in financial management and whether he/she is responsible or not. Although the connection is a loose one, I can see how a credit history would speak of a person's general ability to deal with debt etc
    However, I also realize that for many people, indeed for most people, recessionary and recovery times are difficult, and it might be very challenging to keep a track of things. In some cases, it might be very discriminatory, and indeed unfair

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  17. I think this is completely unnecessary when considering someone for employment. Although there are qualified arguments as to why employers would want to see this, there are much better indicators of whether or not someone would make a qualified candidate for employment. As long as an employee isn't breaking the law with the money they are earning I feel like the employer has no right to know an employee’s financial situation. There are many people in tough situations right now and this is extremely discriminatory to the hiring process. There are too many students that have high amounts of debt they hope to pay off after college with their full-time job offers. If they were unable to make payments while they were earning their degree that should not be frowned upon in their employment search.

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