credit check

Interesting question. I lent about $3000 on Prosper.com in their early days — 2006 & early 2007. During that time, I’ve looked at hundreds of credit score summaries. (Prosper provided a proprietary credit score and a summary version of people’s report.) I want to say that I’ve probably seen more reports (or summaries) than non-professionals, but I might be exaggerating. In any case, I’ve seen a lot.

At the time, Prosper’s worst credit “grade” was “HR” (for High Risk.) Prosper would let anybody, regardless of credit score, apply for a loan. (That part has since changed.)

For the better credit grades, credit scoring was purely a numbers game. At the bottom end, however, “HR” was more than a risk assessment — it’s a description of somebody’s lifestyle. By and large, those people made consistently poor financial decisions, and some of the stories they would tell you would be just flooring. (This isn’t a terribly bad example, but who wants to borrow $3000 over 3 years for christmas presents?) I’m pretty sure they moved around from low-paying job to low-paying job quite frequently.

Given my experience, I wouldn’t be so quick to agree that someone with a poor credit score has hit some temporary hard times and just needs a “boost” and therefore would be a better employee. In fact, if they’ve had a poor enough score long enough, I would wager that they’re someone who has learned to game the system, and would be hesitant to hire them. Why? Because if they can game one system, I’d be worried that they’d game me too. To boot, people with bad credit can be extremely good at rationalizing the mistakes they’ve made and further, rationalizing why they haven’t made steps to improve their score. I’d be afraid they’d be a lousy employee, and have quite an easy time rationalizing that away — after all, employers have lots of money and won’t miss any of it if you screw around too much, will they?

Although you can fire them after hiring, it’s much cheaper and easier to avoid the hire in the first place.

Furthermore, you can be a compulsive shopper, buy too much crap, and have a decent score. You won’t be a top score with maxed out cards, but you will be a decent score as long as you pay your bills on time.

The truly terrible scores do much, much more than run up the cards. But the lifestyles I’m describing aren’t ones that you and I are familiar with, and therefore don’t think of them when we think credit checks are bad. But I only support them if used properly — pull the full report and make a judgement from there. If a current bad score is do to a singular recent event (job loss, medical bills, whatever) then ok. But if there’s multiple periods of bad credit with “job losses” being the excuse, that tells you a lot too.

Are jobs so scarce that we will submit to anything to get one?

This is not the United Sates of America that we once knew.

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.