It looks like while I was traveling last weekend, I missed out on the beginnings of a debate that I had long forgotten about. That is, should employers be allowed to check the credit of their employees, especially when they are in the process of hiring them?
This is a practice that has gone on for many years, whether you knew it or not. Employers will look at your credit score and detailed report the same way they’d order a drug test or criminal history. What are they looking for? Signs of misdeeds, bad mojo, and irresponsibility perhaps.
More specifically, they are probably looking for people that are responsible, and in good financial health.
But there are issues with looking at the credit history. If you judge someone based on their credit score alone, you may miss that their score is low because of a terrible accident with high medical bills that wasn’t covered by insurance for some reason. Or maybe they’ve inherited wealth and never need to borrow money. Both of these can’t have a meaningful impact on someone’s employability.
But the issue goes deeper. Look at the standard process for hiring someone. Drug test, interview, criminal history check. What are they looking for? They want to make sure you aren’t taking illegal substances, are the right fit for the company, and don’t have a criminal past. The drug test is fine I suppose, though I could rip that apart in another post. The interview makes perfect sense. And what about the criminal history? They are looking at that because past actions are a predictor of future ones. You don’t want to hire the guy that did time for embezzlement to run your books.
My main concern with the credit history is that it doesn’t give you anything to work with. At worst, the candidate is a compulsive shopper and buys too much crap. Does that make them a bad employee? I don’t know, but I bet you can find out by doing an interview, and checking references and employment history. If someone has credit issues, I’d say they’re more likely to do whatever it takes to get the job done than they are to try and take money.
Perhaps now is the time to start doing some serious research into the correlation between credit history and job performance. It may actually be a good predictor of something, but as far as I know the jury is still out. Use them if you’re hiring tellers, accountants, and the people that pick up cash from stores. But as a general indicator of job performance, it’s more likely to be useless and should be excluded until a general body of research suggests otherwise.
Now what say you? Am I off-base? Do you have some experiences that say otherwise? I haven’t hired people before so my perspective is on the outside looking in.
Photo: Quinn Anya
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
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Said,
I don’t completely disagree with you. In some ways the hiring process can seem quite intrusive.
However, the cost of hiring an employee is substantial. At my organization, it’s not uncommon for the process to take 6 months or more even at the Associate Director level. VPs are easily a year. And there’s nothing worse than selecting a candidate, paying for moving costs, and getting them up to speed only to discover there’s some significant flaw that perhaps could have been discovered before the investment of time and money was made.
A poor credit score should not be a deciding factor, but if someone’s FICO is that low to cause concern, at least the employer can start a conversation about the issue.
A person who is poor at managing their finances may be equally poor at managing the workflow. A person fretting over debt is distracted from their job. A person driven by fear of bankruptcy may steal from the company — you can steal time as well as money. A person who fails to pay their debts may have questionable character.
I see the reasoning behind pre-employment screening. That’s not to say it won’t negatively effect good people, but perhaps it will make everyone all the more eager to live up to their financial commitments.