FICO: False Indices of Character & Opportunity
by Curt Gruffley
It is my view that the United States should legally prohibit pre-employment credit checks for all but a select few job categories in which an individual's credit rating may actually relate to job performance. For the vast majority of positions, one’s credit report does not serve as any meaningful indication of one’s ability to succeed in that position. Further, to make employment decisions based even in part on a credit history is an abuse of that reports' original and intended purpose. A credit report is relevant only to—and should be used exclusively for—considering risk in lending, and that's it.
You see, credit reports don't take into account unemployment or lay-offs, or those saddled with huge debt from catastrophic illness or accidents. They are not a two-way street in that sense—a credit history may list every single poor financial decision one has made, but omit other details and offer no insight into why a person opened another credit card, or maxed their first, or were unable to make timely payments. And those personal decisions are at least as relevant to job performance and as much an indicator of character as the financial faux-pas that came as a result of such circumstances. Would you want to hire someone who didn't spend every last penny on, for example, their child's health care? And for every tale of credit woe, I grant that there certainly are people that have not handled their credit and finance wisely. But we’re not talking about employers loaning money here, we’re talking about hiring someone to do a job, and that is an entirely different subject. After all, no one's credit report says “hard worker,” “punctual,” or “team player.”
It is entirely too easy for an HR manager to cull the number of resumes he or she must examine by simply running credit checks and then focusing only on those with the best credit history. Or, similarly, running checks on the final round of otherwise evenly matched candidates. Not only is it a poor way for a business to make hiring decisions, it stands to punish those who have been dealt tough breaks through no fault of their own, compounding their misfortune. I have to wonder aloud if, as a society, this is really the way we want positions to be filled. The notion that a few late payments—for who knows what reason—could make the difference between being hired or not is neither just nor virtuous.
And all of the above operates on the assumption that these reports are reliable and accurate in the first place, which is a dubious claim. Frankly, I'm not sure how these companies attained this over-arching power over our lives when their bread-and-butter product is so shoddy. In a Federal Trade Commission study released last year, it was shown that one in four consumers had errors on their credit reports that might affect their credit scores and that one in five consumers had an error on at least one of their three credit reports that was corrected by the agency after it was disputed. I don't know about you, but where I’m from, that’s an atrocious error rate on a product, and certainly not six sigma. But of course, the onus to make sure your credit history is not riddled with errors is on you, the consumer, not the firms who are in the business of providing accurate credit data. Seems to me that accountability is critically important for those whose credit is rated, but not so much for those that do the rating.
If we are serious about putting people to work—ostensibly so that the population can improve their lot in life by their own labor and initiative—then we have to stop excluding those with poor credit history from workplaces. If we do not, employers will continue to be able to deny people the opportunities they need to emerge from debt because of the fact they are in debt in the first place. This catch-22 is exactly the kind of mechanism by which the poor get poorer.
But there’s some good news. Late last year, Senator Elizabeth Warren introduced the Equal Employment for All Act to end the use of pre-employment credit checks in hiring. It is currently in committee, and though my fingers are crossed my breath is not being held. Certainly a call to your Representative or Senator couldn't hurt, if you feel so inclined. Let's make employment and hiring about qualifications and ability, not biased, incomplete, and sometimes inaccurate credit reports.