On Elizabeth Warren’s Bill Against Using Credit Scores in Employment Screening

Since I give Elizabeth Warren a hard time when she pulls her punches, I am remiss in not giving a thumb’s up to her proposed Equal Employment for All Act, which would bar the use of credit reports in most hiring decisions. In the stone ages of my youth, it was unheard of to pull a credit report for a prospective worker. The only cases where it was considered relevant was for jobs in which the employee handled cash, such as a branch teller, since someone who was seriously in debt might find it hard to resist the temptation to pilfer.

Of course, it goes without saying that making creditworthiness a condition for getting a job, which in many people’s cases is a condition for survival, entrenches the power of banks and other creditors. You don’t need debtors’ prisons if the consequence of a bad credit score could ultimately be living on the streets.

The use of these records is essentially a misleading bit of busywork on the part of human resources departments. A post by Bob Lawless at Credit Slips points out that credit scores are generally useless in an employment context and merely pander to employers’ prejudices as to what constitutes virtue:

there is money to be made in convincing those who make hiring decisions that there are data and services that can unlock the hidden traits of job applicants.

Such claims play into a well-known psychological phenomenon known as the fundamental attribution error or the correspondence bias. As Gilbert & Malone put it:

People care less about what others do than about why they do it. Two equally rambunctious nephews may break two equally expensive crystal vases at Aunt Sofia’s house, but the one who did so by accident gets the reprimand and the one who did so by design gets the thumbscrews. . . .

Attribution theories suggest that the psychological world is a mirror of the physical world and that the two are therefore penetrated by the same logic. Ordinary people seem to believe that others behave as they do because of the kinds of others they are and because of the kinds of situations in which their behaviors unfold . . . .

Attribution theory makes a distinction between situational and dispositional causes. A common mistake is to attribute an action entirely to a dispositional cause while ignoring possible situational causes. For example, when observing a driver running a red light, we often will jump to the conclusion the driver is reckless and ignore explanations such as a medical emergency.

The efficacy of pre-employment credit checks plays exactly into the fundamental attribution error. When we see someone with a bad credit report, we tend to attribute it to dispositional causes (poor financial decision making, financial recklessness, dishonesty) than situational causes (health problems, layoff, divorce). Moreover, we probably are especially prone to make the fundamental attribution error when it comes to financial problems. A dispositional cause allows us to tell ourselves the financial problems will not happen to us because we believe ourselves to lack the necessary disposition that will lead to the problems.

The fundamental attribution error, however, does not mean that dispositional causes are never partially or fully explanatory. Sometimes people run red lights because they are reckless, or sometimes bad credit results from a fundamentally dishonest nature. Usually, the most complete explanations for any social phenomenon are multicausal. The question raised by Senator Warren’s bill, however, is not whether some people might have dispositions that correlate with financial irresponsibility but whether credit reports can screen for bad employees. The fundamental attribution error makes us want to believe they can do so, but there is almost no evidence to support that notion (although more research would be useful).

A paper in the International Journal of Selection and Assessment by Oppler, Lyons, Ricks & Opper has been cited by the opponents of Senator Warren’s bill. That paper, however, does not look at the use of credit reports, but instead examines two questions used on an employment application at a large federal agency (maybe the Bureau of Prisons given the authors’ institutional affiliations). The questions asked if the applicant (1) had filed bankruptcy in the past seven years or (2) was currently more than 180 days delinquent on a loan or financial obligation. The study then looked to see if answering “yes” to one of these questions was correlated with “counterproductive work behaviors,” which for purposes of the study was defined to include failure to pay debts and misuse of credit cards. Thus, the study seems to find that persons who are more than 180 days delinquent on a loan or financial obligation are also more likely to fail pay debts or misuse a credit card. The paper has little relevance to the debate over pre-employment credit checks.

The rest of the research finds credit reports to be of no predictive value.

Moreover, from what I can tell, these studies didn’t correct for errors in credit reports. 70% of credit reports contain at least one error, and if you’ve ever had a significant one, you know how hard it is to get the credit agencies to correct it.

While this bill is welcome, credit reports are the simply the oldest version of database scientism in hiring. The media regularly features stories of employers regarding candidates without FaceBook accounts with prejudice (they must be anti-social!) and demanding FaceBook passwords as a condition of serious consideration, presumably so they can snoop through communiques. What’s next, having employers ask for access to your e-mail accounts before they’ll hire you? Similarly, an over-40 colleague who successfully landed a long-term gig said that making sure he had a good roster of contacts on LinkedIn and a decent number of endorsements was critical to being considered seriously at a number of places where he sought work. So while it’s welcome to see Warren taking aim at the worst of dubious information-gathering, many of these other bad practices seem so deeply entrenched that they are probably here to stay.

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68 comments

    1. Yves Smith Post author

      In this case, big financial firms and the jobs were moderately senior too. LinkedIn references were seen as a requirement, which means if you don’t do LinkedIn, you would not be considered.

      1. vlade

        I wonder whether I’d want to work for anyone who can’t understand that requiring something that has nil value to create has nil value too.

      2. bh2

        Arguably, people savvy enough to AVOID posting to social media sites would be top drawer candidates. If financial firms come to the opposite conclusion, it only confirms the widely held opinion (based on results) that most are managed by morons.

      3. LAS

        If one’s job requires rain-making, maybe Linkedin is a kind of weak prognosticator. People are certainly starting to get jobs through LinkedIn. But as time is short for reading, I’d rather log on to Naked Capitalism than LinkedIn. Maybe one day I’ll regret my lack of interest in LinkedIn. But not yet.

        Facebook isn’t that interesting to me either. Friends are nice but dull and the most dull ones seem to do the most posting. So I lost interest. Maybe I’m a bad friend.

      4. David Smith

        Linked-in is valuable for some jobs. I used to work as a commercial real estate appraiser, and much of that job was digging out information about sales. If I were able to contact a broker or seller from a link through linked in, I would get much better information than if I cold called. If I were hiring an appraiser, and there were two with equal resumes, but one had a respectable list of industry contacts on Linked-In and the other didn’t, it would be kind of a no-brainer.

    2. Brooklin Bridge

      From what I understand, getting a job as a software engineer requires the same thing with LinkedIn; number of contacts and endorsements. LinkedIn is generally a more understandable criteria of prediction than a good credit report as far as being a good employee goes though that doesn’t make it any less frustrating for the person who is an excellent and/or brilliant worker but who is not inclined – personally or ideologically – to make and keep such a network of contacts. One of the best software engineers I know has resisted Linkedin mostly out of a vague “unease” with the idea. In his case, it would not be difficult to acquire the contacts and endorsements, but there are others who really prefer to work alone and/or hate being part of such a group. If nothing else, it imposes a “group think” like structure on them and can be anywhere from frustrating to downright nasty.

      But now, as if that weren’t enough, the whole issue of net neutrality comes into play here as well even if the relationship seems oblique. Being “required” to join any internet service – such as a privately run service for business to pay their State or Federal taxes or a network “club” required to get a job seems unconstitutional in an environment where private company service carriers can shut you down or slow your service to a crawl at will (such as if LinkedIn doesn’t cough up a monthly kickback to them or some such).

      1. flora

        ” Being “required” to join any internet service – such as a privately run service for business to pay their State or Federal taxes or a network “club” required to get a job seems unconstitutional in an environment where private company service carriers can shut you down or slow your service to a crawl at will”

        Computer software – operating systems – and computer networks/services are now embedded in govt, public and work life, not just personal entertainment. Your quoted example makes clear it would be a good idea to treat the major operating systems and network providers like regulated utilities, like electric companies for instance.
        And net neutrality is essential.

      2. jrs

        Is it time for guaranteed income yet? Or at least a job market where employers wouldn’t have all the power. It’s of course the root cause of using all these screening measures, that people are desperate for a job, any job. So check the credit rating, pass the psyche test, be recommended by Linked In, no gaps in employment ever, have 2 advanced degrees …

        1. rickc

          I’mold enough to remember just in the 90’s…the application process involved just sending resumes via snail mail.. Honestly Ithink it was better that way since then everyone had a chance to have their resumes reviewed. Now with the online process, so often screening software just tosses resumes out before a human even sees it. The whole online hiring process ensures that people will just fall through the cracks. As for a guaranteed income? Yes I think we will need to have one eventually because for the reasons you listed not everyone will be able to adapt to the hiring procedure…either a gmi or starvation

          1. Lambert Strether

            The elite have shrunk the labor force. From this point forward, absent major changes in the political economy, there will ALWAYS be too many qualified people for any given position, top to bottom, worker to CEO. One way of sorting the pool of applicants is just as good as another. Darts, or numerology based on birth date, or random algorithms — it doesn’t matter. One way, Happyville. The other, Pain City.

    3. ChrisPacific

      That made my day. I wonder if NFL teams would hire on that basis. “No, I don’t have any game film, but 56 of my friends have endorsed my quarterbacking skills!”

      My LinkedIn endorsements are a mess. Half of them are for skills I don’t actually possess (I’ve tried pruning them, but they just come back). The ones that do apply are so ridiculously generic that they are of no value beyond telling you (very broadly) what industry I work in – which you’d know anyway if you read my profile. More than once I’ve thought about opting out of the whole thing altogether.

  1. j gibbs

    Good for Warren. Perhaps she is not just another pretty face.

    Prospective employers should be denied access to noncriminal behavioral histories of any kind, not because they may be erroneously reported or objectively inconclusive, but because personal privacy is more important than delivering ideal job candidates to corporations. The corporations are determined to control our society and everybody in it, and we must do everything possible to prevent this if things are ever going to improve for those outside the predatory elite.

    1. Embrace the Suck

      I almost agree with you. I recently read that a third of recruiters and hiring managers use Google and social media to research candidates, and 88% of candidates are rejected on the basis of those findings. What these people-Googlers don’t realize is that most internet companies make their money through Springerization–making the world look crazier than it is. Google, Yahoo, and other search engines are designed to show the most salacious, controversial, outrageous content at the top of search results. Why? Because that’s what gets people to click. It’s the same with Facebook, Tumblr, etc.

      I actually know of a couple large corporations that have banned this practice entirely for anyone outside the C-Suite. It was simply making it impossible to staff their departments, and destroying efforts to have any kind of religious, racial, political diversity. If it’s not illegal or didn’t result in a recent criminal conviction, they don’t care. Nor should they.

      Companies, managers, and recruiters who rely on the poor-man’s background check really are doing themselves a disservice.

    2. jrs

      It’s not so desirable to have access to criminal behavioral histories either. Ok noone wants to hire the pedophile to work around kids, or someone who engaged in massive theft at their last company. Fair enough and sensible enough. But these days protesting will get you a criminal record.

      1. jrs

        Yea I thought about this one and realized the real problem here is government (at various levels) not employers. Protesting should not get you a criminal record period.

  2. Chris Maukonen

    It’s a stealth way to keep poor minorities out of the work place since they generally have worse credit reports.

  3. Contra indicator

    I once worked with a woman who was formerly a hiring manager for a big 5 accounting and consulting firm. She said that when she made recommendations to hire, she looked for a certain ‘polish’ from candidates. The unstated ‘polish’ however, after much pressing the topic, was really nothing more than a a cultural bias towards and upper middle class or upper class upbringing, with all the attendant trappings: study abroad, certain accents, style and brand name clothing. Grades and merit weren’t part of the equation when so many candidates had ‘merit’ and the best way to separate the cream of the crop became ‘polish’. I was pretty offended to hear that although it confirmed what I had always known.

    LinkedIn is so dumb, so dumb. It’s am data mining operation they scan your emails and your google searches and any time you look at someone they send the target a connection request. Totally ridiculous. I’ve never heard of anyone other than recruiters benefiting from LinkedIn connections. I’m so glad I don’t work in the corporate world. I hear so much nonsense that goes on up there.

    1. ambrit

      Dear ContraIndicator;
      I loved the Freudian Slip in your last sentence. (Full Disclosure: I catch myself doing exactly this myself.) I have been trying to reprogram myself to refer to the Corporate world as “Down There” with all of that phrases sinister and or obscene meanings for quite some time. It’s surprising how tenacious a mental construct can be, eh?

    2. J Sterling

      In the 17th-18thC, England’s navy was growing and hungry for officers, so the navy (like 17th-18thC England as a whole) was relatively meritocratic compared to the 19th. Several admirals started out as rated sailors from poor families. After Napoleon was defeated and the war machine was wound down, there was a glut of desperate sailors who couldn’t find jobs on land.

      The captains who chose officers began to apply bullshit standards that didn’t have a damn thing to do with whether you could sail a ship and fight the enemy. One captain said he didn’t care to have on his deck a lieutenant who couldn’t pronounce “balcony” the socially-approved way. It started to be said that it wasn’t enough to pass the exam for lieutenant any more, you had to pass the “exam” for gentleman too.

      Fast forward to the Mercury Astronaut program, and they made candidates sit with their feet in ice water. This had nothing to do with space travel, but there were too many qualified applicants, they had to find some way to thin the pack. Credit reports and such are the sign of today’s labor glut. Go back to the labor demand of the 50s, 60s, and early 70s, and the nonsense would stop damn fast. It would be “can you start tomorrow!?”

      1. Ishmael

        I agree with your comments about the British Navy (Britian is still that way some what) but really do not believe it is applicable to business since every business I have been involved with it is like war every day. Back in the good old days when there was not much competition then you could carry some dead weight but those times are long gone. There can be some very destructive people out there any more. The goal is to weed through the bullshit they tell you to get down to the truth. Trust me how many times I have asked someone if they would work over time “Oh Yeah sure I would be happy to” until the first time you ask them and then you would think you asked them to swim the channel.

  4. Aussie F

    I’m afraid all this ‘dis-positional’ stuff is fumbling with the fly buttons of middle class morality. If someone rips off a predatory bank, who cares? After all, who’s the real instigator? Banks lie, they offer debt they know cannot be repaid, they crucify customers with hidden charges and opaque levies.
    If some poor wage slave rips them off for a few quid, then good luck and hasta la vista!

  5. Larry

    This type of job discrimination happened to a neighbor of my brother-in-law. He worked for Fidelity in a fairly high paying job of upper-middle management. He was laid off during the financial crisis and spent a long time looking for unemployment. Because of the layoff he fell behind on all kinds of payments, because his lifestyle was more expensive than unemployment could bank, and he could not move on from his home easily since he was underwater. After about a year he landed a job with Fidelity again, only to be denied after they checked his credit scores etc. Now, one would think that if you liked a candidate enough to offer him a job, you might be willing to understand his story of why his credit history had taken a ding. But no, it was a Scarlett Letter that would ban him from employment in finance, the industry he was most experienced in and best qualified to work in. The last I heard he had moved to New Hampshire with his family with unknown career prospects.

  6. TarheelDem

    The systematic use of irrelevant information to exclude qualified candidates from jobs is symptomatic of larger failures of management. An organization that thinks that credit scores are qualifiers for anyone but financial officers in jobs that can lead to embezzlement likely cannot analyze other elements of their business correctly. Likewise, employers that abuse candidates for employment likely also abuse vendors, customers, and employees.

    The fact that Warren is preparing legislation shows just how widespread this abusive style of management has become. And what an obstacle it is to decreasing unemployment in an era in which wage labor and taxes are considered the only costs of business.

  7. grayslady

    We’ve had a law in Illinois banning the use of credit reports for hiring for some time now. I’ve also been working with my state representative to have him sponsor a law that would forbid insurance companies from using credit reports, since paying for homeowners insurance or auto insurance has nothing to do with credit–either you pay your premium and you have insurance, or you don’t pay, and then you aren’t covered. It’s just an insurance company scam to try to boost premiums.
    As for Linked In, it’s a farce. I’ve had people I don’t even know asking me to be one of their Linked In resources, which only goes to show how “valuable” those so-called networks are. What ever happened to face-to-face contact?

  8. bh2

    Human Resources departments are very nearly useless except to avoid transgressing the many restrictions which government will penalize. It is entirely likely that hiring managers who do their own resume screening and in-office interviews will end up hiring someone whose likelihood of being “approved” by HR is no better than a coin-toss.

    Part of the reason for this is that check-box “qualifications” presented to HR by hiring managers are their best attempt to describe to clerical people the objective background credentials of the person they imagine would be qualified for that particular job. The problem is that when real candidates show up, they very often bring capabilities and background experience not specific to the job being hired but which would, nevertheless, bring to the organization enormous (but unanticipated) value added.

    In Japan, HR folks are traditionally chosen from ranks of the most experienced and successful managers who have actually supervised people in the real world. In the US, no successful line manager would accept a position in HR without regarding it as cruel and unusual punishment.

  9. ep3

    another good post yves.
    I would look at it like this. Say you have decent credit now, with low debt. But if your employer looks back at your credit report and sees a history where you had high credit cards, the employer might think “this employee may get themselves in trouble & then ask for raises or whatever”. If an employee has gotten into trouble, maybe a rich relative has bailed them out. So an employer sees that as an advantage/angle.
    To me, & I think you see the same, is that employers are going beyond the normal profits. They are even going beyond skimming the cream off the top. They are digging into anything to extract more wealth & drive ppl down.
    I think also employers look at this as a way to keep them from being blamed for the lack of hiring. Just like the meme of “there are not enough skilled employees”, they can turn to this as “not enough qualified candidates”. Credit checks have become the new drug test. Used to, you couldn’t get a blue collar job without a passed drug test. So now since so many have gone to white collar jobs, this becomes that test.
    Also, maybe an employer will look at their credit report & determine whether they are poor or not. A rich person might have mom & dad paying all the bills.

  10. middle seaman

    We tend to assume that a credit score is an objective measure of credit worthiness. That’s, in my opinion, wrong for a myriad of reasons. Credit scores are produced by processing many billions of transactions. The error rate is far from negligible. Many score are downright wrong. There are quite a few scores which roughly run up to 1000 and below. The system is historically dynamic. In other words, stating what is good or bad is not a fixed point.

    People who suffer from illness, disasters, etc. tend to go into debt and their credit score dives, example: bankruptcy. The great recession didn’t bring with it special treatment of credit scores for the unfortunate. Too much for the Obama crowd.

    Last and not least: all three major companies producing the credit reports are not much better than the company that failed to develop a functioning Healthcare.gov. I know, I consultant to all three.

    1. JEHR

      Then there are the people who never go into debt or make payments on anything they buy and they have no credit score good or bad! You have be in debt to get a credit score!!!???

      Of course the best credit score is never having been in debt. This is a twisted world we live in.

      1. F. Beard

        This is a twisted world we live in. JEHR

        Indeed it is! Having to borrow should be the exception, not the rule. Most Americans should have so much equity by now that they need never borrow.

        Speaking of twisted:
        What a twisted mess we make
        when we dare to fractionate.
        “Thou shall not steal”,
        a simple rule,
        but much too simple
        for complex fools.

  11. Schtubb

    As much as I like Elizabeth Warren, I’ve had enough warnings here to not be surprised when she continues to wimp out on the real banking reform legislation that should be her legacy.

    In my same warped, optimistic perspective, this legislation is so obvious, safe, and overdue that it should be totally uncontroversial – and therefore represents a very canny play on Warren’s part.

    Watch me be disappointed yet again when this is shot down for bogus reasons by the finance/credit card lobbyists, proving once again that no matter how bad you think things are, its actually worse.

    1. NotTimothyGeithner

      I’m of the school of thought that promoting legislation short of something particularly clever which hampers activity at the NSA or the banks directly is not worthy of support anymore.

      Look at the Gilllenbrand Amendment, a political and policy no-brainer. Gillenbrand had to lobby over several months to get 53 Democratic Senators to finally acknowledge the military has a rape problem and merely to support a different reporting system for rape. Was it included in the MIC bailout budgt? No. Is stopping the rape of our Congress’s stage props (soldiers) worthy of ignoring the filibuster? No. Did they even go through the hurdles of a real filibuster instead of Reid’s gentlemen filibuster? No.

      The culture of the Democratic Party is broken, and at some point, Democrats have to clean house/express contrition before they can be acknowledged for introducing non-controversial, positive legislation. I might give her credit for something marijuana legalization because its not 80% yet especially among off Presidential year voters. Until, I see a Democrat announce that the Democratic Party is in need of reform, I’m just going to assume Warren fit in at the Obama White House.

      1. Brooklin Bridge

        I often wonder if for the Obama camp Warren is 1) a renegade 2) a mild irritant or 3) an accepted outlier whose White House blessed purpose is like the big rocks just off shore; to break up the angry sea -first pass- before it gets to the smaller rocks on the ends of the beach that do the next pass (like our main stream media); whittle it down to ripples as much as possible.

        Of course whatever their view, in reality she is #3 along with Sanders, Kucinich, Grayson and so on, and not much else as anyone can see simply by the final bills that actually get passed and by their equanimity (inability or unwillingness to admit the Democratic party is a sham) to the whole hopelessly broken process.

        1. NotTimothyGeithner

          I don’t think the Obama Administration is that savvy. The Administration strikes me as a paranoid cult which separates people into enemies and non-enemies based on the whims of the President. Obama has been driving “immigration reform” despite no one caring about it, and the element of the Hispanic community who would care about a promise this far out also is aware of the brutal tactics of the Obama INS. Obama can’t recognize this reality because he is a cult leader and chief cultist, and I suspect Warren is seen as part of the cult. Like many narcissistic leaders, Obama will pretty much assume anything Warren says supports him unless mentions him by name.

          It is a bit much to expect a single Senator to promote whole platform, but I would like to see the “good Democrats” try to hold other Democrat’s feet to the fire which is why I mentioned the Gillenbrand Amendment. Its a no brainer, but it took Gillenbrand 3 months to get Democrats to even approve of something that should have resulted in 100 co-sponsors. At the end of the day, Warren and the other “good Democrats” will line. If the Democratic Senate just passed it, the message would switch to Republican individuals, not the generic party, answering questions about why they are Pro-rape. I don’t see this from the Democrats which leads me to dismiss any attempts at positive legislation which is doomed to die in the Senate because of the “filibuster” (eye roll) or the House as mere grandstanding. Gillenbrand went out and got the Senate’s votes, and frankly, I’m disturbed by the lack of vocal support for a slam dunk.

      2. Brooklin Bridge

        I completely agree with you and Schtubb (and made a more detailed sub comment earlier which got moderated, I think because I lost my connection, and which explains my obscure comments below that I tacked on to the comment in limbo)

  12. Ishmael

    So, let see. You want a job and you would like it to be a high paying position but you do not want us to know anything about you. Maybe we should not pull a college transcript, maybe not a criminal background search. I ask for all of these as well as credit reports. Now believe it or not I have pulled background reports and found people did have a bankruptcy in their background and they still got the job. I just asked them what happened. Some have worked out and some have not. Anymore, I will ask workers to take some psychology exams. Why, because there are so many people who have some form of personality disorder.

    In today’s world almost any employee can steal from a company. Just recently I was dealing with a company where a paralegal while dealing with a customer who was defrauded by a third party ended up stealing tens of thousands of dollars. Asked why she did it she said she was not getting a lot of respect. Now management had already been alerted to several odd behaviors on her expense reports and she was having to pay back several thousand dollars (she should have been terminated then). Well she is in jail now. The whole thing left me shaking my head.

    My experience is even down to the lowest level you have risk. You need to know what the risks are to manage them. As far as Linked In. Those referrals are crap and only someone who knows nothing would use them.

    1. Brooklin Bridge

      1) Credit reports are notoriously inaccurate. 2) Companies may have a policy of using credit reports, but they rarely if ever have a formal policy of giving the candidate a chance to explain or correct a faulty report – being judged guilty, in secret, without any redress has, up until recently, been viewed askance . Usually, the candidate never even knows that the report had any effect on his/her chances of getting a position. The fact that you “occasionally” or even regularly give candidates a chance to explain themselves, without being policy, is like charity. Thank you. You are big, brave and wonderful. But you are not the subject of this post.

      1. Ishmael

        First and foremost these are private companies. People are putting up there capital so they should be able to set the criteria used to evaluate people. When people like Elizabeth Socialist Warren start interfering this is just one more step towards total government control. If you like how this turns out check out the Soviet Union, Scandinavia and even France (by the way, I worked one year in Scandinavia so I am very familiar with the situation there). Also I notice the comment above about Illinois, having done business in the state of the Illinois I would never open a business there (and since I advise a number of companies that is what I advise them also). I also believe Illinois is ranked as one of the worse places to do business in (and State and City financial condition are in shambles). Currently in most of Europe there is all sorts of checking before they hire anyone including handwriting testing in France and some other countries in Europe (I wonder how reliable that is even though I have been through some training with interesting results) as well as almost everyone has psychology testing – they are very fearful of sociopaths there.

        Usually, credit checks are not asked for until you are far into the process. In fact you are usually the final candidate. Since you are the final candidate I would think in almost all cases there would be a follow up call if something strange comes up. In fact this is usually discussed before hand if there is anything you should tell us. In that case most people will tell you the situation before hand. If something surprising does come up, most companies do recognize that an error might have occurred in the reporting and follow up with the candidate.

        If you are worried that decisions are made in secret, there are all sorts of decisions made in secret and many of them are bad. This could range from you being too tall or too short or some other arbitrary matter. Having hired several hundred people, I can not recall a credit report ever keeping someone from getting the job. With regard to HR in the hiring process, I think they are terrible. That is why I do all my own hiring.

        As you put more and more requirements in the hiring and firing process then less hiring occurs. Once again Europe is a good example of this. No one gets hired there because you can not fire them. It is difficult to fire people in France even when you are in bankruptcy and have no money. I just had a friend of mine go through that and the judge was an idiot.

        1. Noon time lunch

          Then why pull the report if it has little or no bearing On a hiring decision? You do it because you can. It’s a complete invasion of privacy. And that mr boss man, makes you a voyouristic jerk. Try to blame the government regulations when it’s really about just checking out the size of someone’s mortgage or their personal financial situation. Whatever!

    2. smartstrike

      I bet that Dick Fulds and Angelo Mozilo had perfect credit report scores?
      Do employees steal from their companies, or do companies steal from their clients?

  13. Brooklin Bridge

    For some reason I am unable to reply to NotTimothyGeithner in a sub comment, so I’ll try here. I couldn’t agree more with his/her comment a little above and also with that of Schtubb.

    I wonder if the Obama camp sees Warren as 1) a renegade, 2) an irritant, or 3) an approved outlier like the rock off shore that breaks up an angry sea (first pass) before it reaches the rocks on either end of the beach (main stream media) that further break it into ripples.

    Regardless of what the White House thinks, so far she has been #3 in effect as have Sanders, Kucinich, Grayson, etc. As Yves has said elsewhere, the position of Senator has it’s limitations. Unless she does something that leads to results, the suspicion that Warren is comfortable with simply making noise and slight discomfort to bankers during hearings, and suggesting bills that she knows will never see the light of day seems warranted just as it does for the others.

  14. Anthony Alfidi

    I agree that credit scores and social media profiles have little bearing on character. Verifiable compensation history is probably the best indicator of a potential employee’s value because it proves someone paid them to do something.

    1. Ishmael

      I will disagree with you totally, a credit report will tell you a lot about a person. If a person is in a bad credit situation they would be far more likely to steal money to help get themselves out of that situation. Or maybe they have bad credit because they have a gambling problem or a drug problem. Or maybe they just do not care and feel a sense of entitlement.

        1. Steve

          So True JRS……

          In 2004-2005 I sold my house and boat, tore up credit cards and went completely cash only…. Bought another house for cash in 08 after “it” hit the fan… In 2009, I decided to put a HELOC on the house
          to take advantage of oportunies that might present themselves…

          So I have no debt, lots of cash in the bank, own a business that is also “cash and carry”…… I march myself down to the bank where I have my personal and business accounts (whose deposit total exceed the amount I’m looking for)…….. Guess what !!!!!!!!!

          DENIED…… Because I have no credit (history)score because I’ve had no debt in the last 4 years…..
          I say to banker fine… give me a credit card with a 5k limit and I’ll give you history….
          DENIED can’t give you card you have no credit history/score…

          I said ” I’ve owned 4 houses, 5 boats, cars all on credit.. all payed on time and in full. I have enough cash in YOUR bank to cover everything I’m asking for 5x over. I saw the financial idiocy that was coming sold my stuff paid all my debts and stood by and watched as YOU bankers got bailed out with MY tax dollars.. and my reward for prudence is denial???????” Doesn’t anyone THINK??”

          yeah I was pissed….

          I guess I’d be unemployed too…. Computers and models are great tools… But they are not a substitute for deliberative thought.

  15. Hugh

    In a kleptocracy, what does it mean to hire the “best” person for the job? If BS criteria are used because there are always too many qualified job applicants, doesn’t this put another nail in the “jobs-skills mismatch” argument? Is the idea to try to find applicants who will steal from the company less so that the C-level execs can steal more? Or is it just about social control? Here’s a hoop. It doesn’t mean a thing. Now jump through it.

  16. JMarco

    I find it great that one senator has potential job hunters in mind. Expecting a freshman senator to make all the changes to Congress that are needed is just Pollyanna in nature. She has tried to lead the discussion that “Banks too big to fail” is very dangerous to US economic health. Americans need more senators like her to bring this Congress back to serving its constituents/voters rather then financial wealthy or large corporations. Remember she was one person who continually went public on how opaque all the TARP spending was and how we deserved to know how that billions of Taxpayers dollars was spent? And we finally got some answers. I am not familiar with Yves knocks on Sen. Warren’s work but this woman is not Joan of Arc either.

    1. Lambert Strether

      Warren was by no means the “only person” who pointed to the lack of trasparency in TARP; there was a good deal of that from the right ehich, shamefully for soi disant progressives, drove the opposition to TARP.

      Warren’s cause is not well served by ill-informed hagiography and pom pom waving; surely Democrsts have been burned enough by that already?

  17. Brooklin Bridge

    I occasionally have to deal with credit reports and find they are almost always obscure in the way they grade things. They will say, for instance, “Key factors that adversely affected your score: Number of accounts with delinquency” and yet I know in my own case and that of several others that they have no delinquent accounts, ever (unless there is some obscure meaning to “delinquent account” such as -perhaps- an account that was delinquent in a previous lifetime.. And it’s hard or impossible to get the agencies to tell you exactly what they mean.

    Since these things affect people so much, for instance in getting an apartment, it would be nice if the credit agencies were required to be more helpful, more open, and particularly if more diligence in avoiding error was enforced.

  18. Contra indicators

    Credit reports are valid for only one thing: the ability of the borrower to handle debt. It’s actually surprising accurate at doing this even with the multitude if errors contained in reports. a huge difference in timely debt repayment of those with 750 credit scores and those with 600 scores. And crazy enough it actually correlates to insurance too. I have a good friend who works for the high net worth department of a property insurance company. They pull credit scores for everyone they underwrite, even though it takes over $5,000,000 policy just to get in the door. They routinely deny coverage to uber wealthy people because they can’t do simple things like pay on time. All use insurance company wants is a premium paid in time timely manner (these are big premiums). But these same people that are late payers are also historically most likely to file a claim interestingly enough.

    1. Yves Smith Post author

      I’m sorry, this is bullshit if the errors are material.

      The cases where I’ve had to clear up credit agency errors, they were gross and made a big difference. In one case, they combined my records with someone with the same first and last name but a different middle initial who lived within a 10 minute walk of me. The tipoff that something was wrong should have been that the file had two different Social Security numbers! And the woman they had mixed me up with had much lower income and was a deadbeat. When I called the card companies (remember I could see all her card #s and in those days, they showed the full card #s) and told them, they were alarmed and went into overdrive writing the credit bureaus to straighten this out (since having this info on the same report meant I could charge on her cards and vice versa). Even so, it took my attorney writing nastygrams to get them off their duffs. The process must have taken 18 months.

      I had another case of a bogus tax lien. I’d paid NYC on a timely basis, had cancelled checks to prove it, but they never sent me a single notice and went straight to trying to seize my assets. They changed the listing to “vacated” which is legalese for “never should have been filed in the first place”. A tax lien is a monster bad item in a credit report, and again, it took the agencies nearly 2 years to remove it.

      I won’t bore you with my two other stories but they are every bit as bad.

    2. Laura G.

      “It’s actually surprising accurate at doing this even with the multitude if errors contained in reports.”

      What a bunch of bullshit. Just recently I had some phantom debt of $895 put on my credit report. This debt is not mine and it dinged my credit score for 50 points. 50 points is a lot and can take you from one credit level down to another credit level. I got Experian to delete the erroneous from my report but Trans Union is pretending I don’t exist. So eventually I am going to have to sue Trans Union just to get this stupid trade line off my report when it should never have been there in the first place.

    3. Michael Olenick

      If they’re interested in seeing how likely a person is to file a claim they can look at insurance claim history: a correlation with credit reports may or may not be coincidental but there’s a much better indicator. I have a simple solution to insurance companies that want my credit report: I do not do business with them. I have filed very few auto insurance claims in my life, paying far more in any given year than I have had paid out in a lifetime. I’ve never filed a property insurance claim. If insurance companies do not want my low-risk premiums — which they can verify through a quick check of claims history — they’re free to forego the business to smarter competitors (just don’t whine that business is bad because of regulatory burdens later).

      I think pulling credit for employment is both unfair and stupid: if an employee has a verifiable positive work history including skills an employer needs I don’t know why they’d hurt their own business by passing over a valuable worker who has poor credit, no matter what the reason. I’ve never heard of tech companies pulling credit reports: there may be some that do though I doubt it (too many in the field have lousy credit thanks to working for or creating failed startups). It says something that the healthiest, smartest, and most corporate welfare independent industry in the country seems to usually forego this costly, irrelevant, and disturbing practice.

      Credit reports for employment are probably a function of marketing to human resources departments; busybodies who seldom understand much less contribute much to businesses in my experience. Smarter companies can and should merge most of these functions into operating units and outsource most of the other HR functions, like providing forms and benefits administration. One benefit is losing non-productive employees, like HR hiring “professionals,” who advocate for worthless red herrings like credit reports.

  19. rps

    Potential employers obtaining perspective employees credit scores is an invasion of privacy. The only purpose I can surmise about this unwarranted invasive act is for the employers determination of the lowest possible salary that the candidate is willing to work for.

    Again, this is an invasion of privacy. In fact, I’d state that it violates the IV amendment: (Privacy of the Person and Possessions) The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized….

    Oh heck, what happened to the good old days when people would say, “it’s none of your damn business.”

  20. test

    Credit scores aren’t even relevant in the first place. They fail to do what they have been designed for (if we assume it wasn’t made only to make money selling credit rating data). So how come we could use them for something that has nothing to do with it’s original purpose?

  21. EoH

    Using credit scores for most hiring decisions guarantees that the long-term unemployed stay unemployed. The same for anyone who, because of job loss, divorce or health care costs, has declared bankruptcy (even under the onerous, creditor-friendly, post-2005 bankruptcy regime). It is counterproductive and irrelevant to evaluating who might be a good fit for a new employer. So, too, are the now ubiquitous, blunderbuss personality tests employers now require. Ham-fisted and unnuanced, they earn good money for consultants, but provide little practical information for employers. Like credit scores, they are simply among the pate of practices adopted by consultants and, hence, employers. Only HBS could be proud of such a dog’s breakfast.

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