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Hiring Based Upon Credit Scores? Bad Idea.

2009 October 22
by Richard N. Landers
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In an example of technology run amok, Fistful of Talent reports on a tendency for current employers to use credit checks as part of the application process.  I think the impetus for such use is the increased ease with which one can conduct a credit check – fire up the web browser, and a few clicks and social security number entry later, a whole lot numbers get dumped in front of you.  Seems like a good value (lots of information for little effort), so why not?

Well, because it isn’t really such a good value.  Credit is only a proxy for the personality traits and other characteristics that I suspect most hiring managers are actually interested in: integrity, follow-through, ability to take responsibility, and so on.  And if that’s the case, why not assess them directly?  Personality-based integrity tests, for example, are relatively inexpensive and show no adverse impact[1] , so just use those!

Any specific piece of information about a person you are trying to get from a credit report can be gained by more direct methods.  Want to know about follow-through?  In a structured reference report/letter, ask references to describe a situation where the subject did or did not follow through well on a project.  Then, ask for more details about those events during a structured interview.  Problem solved, and you didn’t even have to ask yourself whether spending 7 years to pay off a car loan is good or bad in relation to job performance.

And let’s not forget that beast lurking in the shadows, the potential lawsuit.  Consider this final thought from FFoT:

And here’s where it really gets ugly: U.S. Representative, Steve Cohen, of Tennessee, found that many of the credit challenged were “young people, seniors, minorities, and divorced women.”  Ok, so maybe ‘young people’ and ‘divorced women’ don’t constitute a protected class . . . but you’re playing with fire in regards to ‘seniors’ and ‘minorities’.  Roll the disparate impact dice too many times and you just might come up with snake-eyes.

Footnotes:
  1. Ones, D.S., Viswesvaran, C., & Schmidt, F.L. (1993).  Comprehensive meta-analysis of integrity test validities: Findings and implications for personnel selection and theories of job performance.  Journal of Applied Psychology, 78, 679-703. []
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