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Source link: http://archive.mises.org/12461/should-employers-be-allowed-to-check-your-credit/

Should Employers Be Allowed to Check Your Credit?

April 13, 2010 by

Should employers be allowed to check job applicants’ credit reports?

I debated that question on CNBC’s Street Signs today:


Of course employers should be allowed to check applicants’ credit. Why should they look only at the biased information you put on your resume? Credit reports provide a fuller picture.

My debate opponent, consumer advocate Joe Ridout, pointed out that there aren’t any statistical studies that show a correlation between bad credit and employees who rip off their employers. But why should we need such studies? How about a little common sense, which tells you that, say, someone who is routinely late in making payments just might be late for work?

The consumer advocates’ argument rests on the assumption that businesses are irrationally discriminating against applicants with bad credit.

But if we just assume that businesses are greedy and care only about making money — which, I think, the consumer-advocate types normally would grant us — then why would they spend money on credit reports that have no value? Do “consumer advocates” really believe that they not only know what’s best for you and me, but also know what’s best for businesses’ bottom lines?

Finally, let’s not forget the people with good credit and what a great service credit reports perform for them. A clean credit report lets you carry your good reputation with you wherever you go. Because of this market innovation, it doesn’t matter if you move to a new town where you don’t know the people at the bank or at your prospective employer’s office. They can check your report and see that, to that extent, you seem to be dependable.

It would be a shame if misguided activists and pandering politicians took some of this benefit away.

{ 42 comments }

Walt D. April 13, 2010 at 4:48 pm

There are at least three classes of undesirable employees the credit report can screen out:
Those with drug/alcohol problems
Those with marital/divorce problems
Those with health problems
You don’t seriously thing that The State of California, Bank of America, Citibank, Pacific Gas and Electric, the City of Vallejo or any other employer who has either filed for bankruptcy or has bad credit themselves actually cares whether some has bad credit?

David C April 13, 2010 at 6:48 pm

I agree, and I don’t even like the prospect of employers checking my credit. The way I see it, if my credit is an issue, then I’ll let them suffer the natural consequences of not getting my skill and talent, and give those to someone who appreciates it more. (I usually avoid debt, so I don’t even have a credit score at this time … you should see how amazed people look when they see my report)

However, I do believe this cultural obsession with credit scores wouldn’t be so prevalent in a healthy free market economy. Our nations fiat monetary system that prints credit out of thin air causes an over reliance on credit scores and credit history.

J.H. Huebert April 13, 2010 at 7:06 pm

Don’t you think that in a free market we’d see even more things like this to allow people to demonstrate (and others to check) their reputations?

This sort of thing facilitates commerce. It’s what allows eBay to work so well, with its feedback system, which provides people with information on who they can safely deal with, since government isn’t going to be able to do anything for them after the transaction if things go wrong.

Gernot Hassenpflug April 13, 2010 at 10:27 pm

In Japan one routinely has to bring every single official document from university level onwards to a job application, plus hand-written CV. Luckily no credit reports, but let me state clearly: companies are not greedy, only people. Companies of any appreciable size are likely staffed by a ton of bureaucrats whose main objective is to make themselves “useful”. It is as clear as the sun on a fine day that requirements for credit reports will simply become a part of company policy, regardless of merit, and give the interviewers even more trade-offs to consider in their assessments. Personally, I don’t think it is a good idea at all. If I felt that I did not need the job, I would refuse, and if I really felt that I needed the job I could not refuse.
That said, I can see why profiling types might like the extra info. I just won’t want to give it to them.

Bowtie Daddy April 14, 2010 at 4:42 pm

What allows eBay to work so well is it’s lack of competition.

In a free market, we would not be seeing a progressive systematic devaluation of the currency making paupers out of even the most responsible individuals out there.

HL April 13, 2010 at 6:53 pm

Profiling is a critical tool for the efficient hiring of employees, especially on a large scale. For example, most of the best bill collectors are borderline insane and almost pathologically incapable of personal maintenance. A fast talking, sloppy looking guy with a horrible credit report would be high on my list for that job. On the other hand, the best bank loan officers (with apologies to Dick Cheney’s long lost cousin who often posts here) are extremely detail-oriented fuddy duddy types who iron their underwear and have time-horizons that would make a Calvinist business leader blush. So, a clean cut guy who squeaks just a bit when he walks in and has an 800 credit score would be on top of that list. And so on. I do not claim to know why certain key characteristics are unevenly distributed amongst the working population. What I do know is that profiling works and even the briefest thought experiment would confirm why: who we are is expressed in our actions; certain characteristics manifest themselves in certain ways; and so if our actions correspond to a certain characteristic then it is entirely fair to assume we posses that characteristic. There are professional firms that will test candidates for hundreds of dollars per test. A FREE credit report can produce almost the same level of accuracy. No brainer for me.

Now, moving on to more important matters: I am not entirely convinced I like JH’s new hair style. Hairstyles, you know, also convey information about a person.

newson April 13, 2010 at 7:13 pm

good closing line. nice to see a civil debate, with gracious opponents.

Ohhh Henry April 13, 2010 at 7:32 pm

Can we please do that with Presidents too? There were intimations that BHO never held a real job and never paid off a credit card before he got his first sweetheart book deal. And GWB hardly appeared to the casual eye to be any more lily-white.

Then again, maybe not. For this particular job it is essential to recruit someone with a disreputable past, because if they cannot be blackmailed by the powers-that-be with threats of disclosure of, say their credit history, college transcripts or other murky details of their life such as (ahem) birth certificate, then it’s pretty hard to make them do what is required of them. Allegedly.

It would be in no way ironic, coincidental or even surprising if the person recruited for this job, the head stooge overseeing the destruction of the economy through an overdose of credit, is someone who had a lousy credit history. In the real world of trust and voluntary exchange, credit matters. In the fake world of lies and coercion, the opposite is true.

Phil April 13, 2010 at 8:17 pm

The US government checks the credit scores of military personnel before handing out “Secret” clearances. Obviously someone with high amounts of debt is more likely to sell secrets to foreign operatives. The US government is wise enough to see the danger in hiring (or giving clearances) to people with high levels of debt. Any self respecting employer that is trying to fill a position with any sort of responsibility would be derelict if they didn’t check an applicant’s credit report.

Also, rental agencies check credit reports before signing leases. It all seems so logical!

Telpeurion April 13, 2010 at 8:26 pm

Let’s check the credit score on the US government, AAA! Come on.

mvk April 13, 2010 at 9:15 pm

I’d like to see a bank’s credit score. With their fraudulent fractional reserve banking of lending out 10 times more money then they take in, I’m sure their scores would be close to the 300 level and wouldn’t be able to pass their own standards they set for their clients if the bank itself applied for a loan. Oh the magic of the printing press and counterfeiting! Something we all pay for in the end through higher prices.

Seth April 14, 2010 at 1:39 am

The question asked was not whether or not it is beneficial to the employer to run a credit check on applicants. The question was whether the employer should be able to. Of course, in a free-society, the employer can discriminate ad infinitum if he or she so desires.

Now, in order to access the credit score of the applicant the employer may first need his or her consent. I don’t know. But if consent is not given by the applicant, the employer should be able to end the interview immediately, in a free-society.

Old Mexican April 14, 2010 at 1:49 am

My debate opponent, consumer advocate Joe Ridout, pointed out that there aren’t any statistical studies that show a correlation between bad credit and employees who rip off their employers.

Indeed, the point made by your opponent is irrelevant. What business is his if an employer believes that a credit report gives him a better insight on the potential candidate? That’s his right.

This person is coming from the premise that people are entitled to a job, and that any hindrance to this artificial “right” is wrong or unethical or suspect. This is nonsense.

Cybertarian April 14, 2010 at 5:05 am

So,

Can I check the government’s credit score because I obey it’s laws, pay my taxes and hand over the control of my life to them ?

Given the government’s credit score, it would fail miserably.

Also, is citigroup, AIG, GM, wall street banks etc. part of the employers who check their employees credit ?

There has got to be many scummy employers with bad credit that sleep in bed with TARP. How dare they check their applicant’s credit.

No, they should not be allowed. Applicants sell their skills and employers should hire only on skills and experience. If they want to weed out bad prospects, they can test them first before fully employ them.

This country has gone mad.

Bowtie Daddy April 14, 2010 at 4:24 pm

This country certainly HAS gone mad. The case for is simply a bad argument, and the concequences outside of the technical insanity of employment based on economic situation, are far more crushing than even a Keyensian welfare state.

It has the effect forcing the downtroden into a choice between a virtual death sentence or the government dole, regardless of their fitness for employment. How would doing this serve to help the case for free markets? If anything, this practice is going to bloat the welfare state until it pops (taking everyone with it).

Daniel April 14, 2010 at 7:38 am

When did i sign up for credit service with no privacy about my debt??

I find it a bit simple, yes they may if I consent, if I didn’t, then no they may not… Would consumers want a product if almost anybody with a company can ask for spending details…. I wouldn’t, nor do I think others would be thinking of getting a service like that. But for most, in a truly free-market, I wouldn’t even have to have a credit line, nor a company that keeps track of my spending habits.

Historically one could easily state that ‘the people’ want banking matters kept secret, there’s a reason for that.

Mushindo April 14, 2010 at 8:25 am

I am a banker, and I wouldnt dream of hiring an analyst without checking him on th ecredit bureau first. A poor credit record opens too high a risk to employ.

I am however rather puzzled at the American thinking which seems to see having ‘NO’ credit record as a Bad Thing. Where I live, in the personal market we see a ‘clear’ record as a Good Thing, (other than in the case of a fresh school-leaver). The more so the older the individual is. Because this tells us that this person has not made a habit of using credit in th epast, which implies he is prudent in managing his affairs according to his means. Its not a good enough reason to lend to him without fuirther analysis of his affairs, but it is a positive feature in th eprofile.

A record of moderate borrowing from few sources and a clean record of repayment to date, is also very well-respected.

A record of borrowing that shows recent increase in the number of sources of borrowing and/or amounts, even if repayment behaviour is still clean, starts to ring some alarm bells about potential for overcommitment and living beyond means, and warrants more detailed enquiry into th eapplicant.

Finally, a record of sporadic or late repayment, or outright default, is a loud and strident signal to stay well away. Whether you are a lender or an employer.

Thats about it, really…..

Joe A April 14, 2010 at 8:30 am

The only real issue I have here is that having your credit report run by anyone actually acts to reduce your overall credit score. If you are in a heavy job search and each prospective employer is running your report, each subsequent consideration results in a lower score, reducing your chances of landing each subsequent job. Maybe my problem is with the methodology used to generate the score, but as long as that methodology exists, should searching for a job by applying to multiple prospective employers act against you? Given my cynical view that the overall score would just be looked at by an HR filtering software or even an actual HR person who cannot (or is not allowed to) think for themselves and look into the details of the report to make a true judgment, as opposed to just drawing a red line at a given score and not looking at any applicants below that, I think this would be a disservice to both the prospective employee, as well as the employer in a lot of cases.

J.H. Huebert April 14, 2010 at 8:48 am

Inquiries by employers don’t don’t affect your credit score and don’t even show up on your report when creditors pull it. Only inquiries where you were seeking credit count.

Bowtie Daddy April 14, 2010 at 4:11 pm

I’m going to have to dissent on this one. I don’t agree at all that a credit report is an accurate indication of potential performance on the job. The result of our monetary system, that is perpetually robbing people through inflation, has created economic conditions for many people in which the prospect of simply being too poor to pay for bills, which are ever increasing due to inflation/taxation/regulation against stagnant or falling wages (yes yes, we all know this, I know), is an ever increasing reality.

There are simply a lot of people who are out of work for no reason other than the mismanagement of their employer, economic collateral damage, or their participation in the largely manipulated Wall Street Casino Extravaganza.

The practice of requiring credit checks for job applicants effectively favors the rich candidate over the better candidate. The nature of doing business is the act of taking risks, and this includes the hiring of employees. A credit check does not offer any insight into what the cause of it’s quality is, leading to a potential loss for all parties involved. It does not provide any such indication whether someone will be tardy or not. Most people who have the money to pay a bill, do so on time. I would reasonably think the amount of people who would willfully choose to pay a bill late are quite low.

The opposing viewpoint is, I hate to say it, more realistic in this case. The effect of the economic mess we’re in has a very high likelihood of poor credit ratings for perfectly responsible and valuable workers. To base their ability to get a job on their personal financial position rather than their likelihood to perform is both bad business and immoral. It’s a bit like kicking someone in the teeth for no other reason than being down on their luck.

HL April 14, 2010 at 8:00 pm

I think Jake addresses your point below very well from the libertarian rights viewpoint. I just want to add that I disagree with your empirical hypothesis regarding why certain people get lower or higher scores. Sure, the banks are screwing us all, I’ll give you that. Also, many (many!) innocent folks were caught up in the bubble. “Real estate only goes up, right?,” they foolishly thought, and now they are being wiped out en masse, through no “real fault” of their own. All that conceded, it still stands to reason that comparatively speaking a higher credit score bodes well for certain occupations. Period. My own experience in the financial world bears this out. Sure, a couple of great candidates get screened out, but who cares?

Jay April 14, 2010 at 5:01 pm

This one is easy. It is still your choice to be employed or not. If you dislike that a potential employer requires a credit check, no one is forcing you to hire on with that firm.

Jake April 14, 2010 at 6:14 pm

I’d like to point out that it is not a good argument against employers checking credit scores to say “I don’t think there’s any value in knowing the credit rating of a prospective employee”, “Credit scores are inaccurate”, etc. It doesn’t matter what YOUR opinion on the matter is any more than your opinion on what kind of car someone drives justifies your support for banning that car. If the employer feels it is meaningful then that is their decision. If you don’t agree, seek employment elsewhere.

Jay April 15, 2010 at 2:19 pm

Here here, Jake. This principle, choice, is one that should be cherished.

Michael April 19, 2010 at 4:29 pm

It would seem to me that the problem is more to do with the prevalence of this credit checking process. If the majority of companies does this then there is no choice involved for the prospective employee, they can’t simply seek employment elsewhere. If they are a perfectly valuable employee then they are being unfairly discriminated against. It seems to me the main issue is whether or not a minority of genuinely valuable employees with some credit discrepancies should protected from potentially unfair profiling, or if they should be allowed to ‘fall in between the cracks’ for the greater good of businesses.

Jay April 20, 2010 at 10:21 am

Then employers will find it hard to attract talent (should most of the talent be unwilling to submit to credit checks). This will lead to a change in their policy or to their demise.

Jim in Philadelphia April 19, 2010 at 5:18 pm

The first problem is with the “value” of the information; it is usually inaccurate.
I presently do not have a credit score because my father passed away last year and the “big three” think that I too am dead.

The second problem is that when one is unemployed, and broke, and has a family to feed, house, clothe, and educate, one makes decisions under duress, including the decision to give up ones privacy.

I think the unemployed , and those seeking better employment should be spared from being under that duress.

George Leonidas April 20, 2010 at 9:15 am

Not just no. Hell no! I think of the small business owner one block away who went bankrupt from medical bills. Are we to screen him out because of a bad credit history? I’m sure that all of our college graduates will love having their potential measured by their debt to income ratio on graduation day. I could go on with many more examples. There are far too many intangibles and false indicators for this to be a reliable indication of personal character. Its purpose is to help a financial institution gauge someone’s ability to pay for a service or repay a debt. Using it for unintended purposes will bring unintended — and probably tragic — results.

David April 20, 2010 at 10:17 am

The credit score is only possible today because the Government assigns to each of us a unique Social Security Number. The credit score cannot be accurately labeled a free-market phenomenon.

Government does this all the time: It creates social institutions and norms that end up being regarded as part of the natural order of things. Those institutions and norms inevitably help Government itself as well as its large corporate allies.

Jay April 20, 2010 at 10:27 am

David (and to George). I completely agree about credit score accuracy, et cetera. However, an employer still has the right to do as they wish in this case. They have a right to use information, however inaccurate, to make business decisions. If credit worthiness was measured via some free-market means, then I’m certain the data would be more accurate (if it wasn’t, then who would rely on such companies to measure lending and employment risk?). In the end, they [employers who choose to use quasi-government credit scores] will likely lose out on strong talent that would have benefited them. Their policy, their loss. This should not be regulated other than by the choices of those seeking employment.

Ray April 20, 2010 at 11:33 am

Ordinarily, I’d agree that credit scores can be helpful to potential employers in screening applicants. But these are not ordinary times and depending on a credit score is hazardous, at best. There are far too many otherwise qualified candidates whose credit scores have taken a beating due to prolonged unemployment and the downturn in the housing market. It doesn’t take much to have had your credit score whacked like a pinata if you’ve spent the past 6+ months with half of your typical income in a house that’s upside down on the mortgage. If allowed to place emphasis on credit scores, we may well be denying employment to a whole cross-section of candidates based solely on circumstances beyond their control.

Ron Congress April 22, 2010 at 3:22 am

What about Enron? Did any employee know they were cooking the books? So why would Enron be allowed to look a my books (a.k.a. personal credit report). What about all the American CEOs that have stolen millions? How was there credit score, perfect? So anyone with good credit should have a leg up on everone on the planet in every situation including employment? Here are some stats for you . . .

70+ Million Americans Suffered “Bad Credit” (Previous to July ’09) long before the full economic collapse – that’s more than 1/3 of the entire population between 20 and 75 years old

379,000 Bankruptcies Filed Q1, 2010, (17 percent increase over Q1, 2009 during a year in a year which they soared upward by 32%)

35% Increase in Foreclosures and a 16% Increase in Foreclosure Notices Q1, 2010 (over Q1, 2009) and 1 in every 4 Homes in America are at least 10+ % “underwater.”

In survey after survey, including a recent MSNBC survey, more than 90 percent of Americans say that workplace discrimination based upon someone’s personal credit report is wrong and should be illegal. ZERO statistical evidence exists to tie bad credit reports to fraud! It’s already illegal in 3 states and HR3149: The Equal Employment for All Act would make it illegal in every state, but most Americans don’t even know the legislation exists. Please support the overwhelming will of the people and the rights of highly qualified American workers to compete on a level playing field during this horrible economic disaster. Join our FB PAG at: http://groups.to/h.r.3149 or shoot us an e-mail at hr3149@gmail.com with”sign me up” in the subject line.

Eruwan Gerry July 31, 2010 at 10:08 am

Yes, employers should be allowed PERIOD!

Zach Edwards January 10, 2011 at 2:57 pm

The “PERIOD!” argument doesn’t work for those of us who have graduated kindergarten.

Nick The Job Search Guy August 10, 2010 at 9:23 pm

I think it horrible that a company can use your credit against you. About 10 years ago I had some very serious health problems and racked up a lot of medical debit and quickly got behind on things like car payments and credit card bills. After a lengthy recovery I was finally ready to return to the working world I had heck of a time trying to get a job simply because of my credit score. So for those that think this is or ever was a good practice please remember that things happen in life and to judge someone on the merit of a stupid credit sore is very bad practice (even borderline discrimination).

Marie September 11, 2010 at 5:30 am

I am absolutely against checking a potential employee’s credit, especially before any initial interviews are made with them. Resumes, education creditials and references from reputable sources are adequate to discover if they are appropriate candidates for the position. After that a criminal background check, which can be made without the social security number, but upon their driver’s license. There are many reasons in which a person may not have perfect credit or any credit at all and it does not necessarily mean they aren’t trustworthy. Some people incur medical conditions that may be resolved, but leave them out of work for a period of time and behind on payments – therefore lowering their credit scores. Also, there are young people who haven’t established credit histories simply because they haven’t worked long enough or purchased big ticket items like cars or mortgages. Personally, my husband and myself do not use credit. We are against going into debt for anything and so we only purchase what we can afford, or we save up for something we need. So, our credit is minimal. Why should low credit, which is not a reasonable indicator of personality, education or reputation be involved in job seeking, especially if they have good references, job skills or history, education and no criminal background?

PAT September 25, 2010 at 10:47 am

If you have no job you can’t pay your bills. If you can’t pay your bills your credit score goes down. If your credit score goes down you can’t get a job.

Really is there anything to debate?
So should an employer be able to ask your Ex how you are also?

Zach Edwards January 10, 2011 at 2:29 pm

Our society is a broken system, where compassion and empathy have been crushed under the foot of corporate-isum. I have great credit, scoring around 800. At this moment, I am currently looking for employment, and for the first time been asked to supply a credit report. I WILL NOT. If a potential employer can not determine that I am a man of integrity through the interviewing process, then they should not have the privilege of my hard work and loyalty.

Revolt! And FIX the system.

BotheredByThis January 16, 2011 at 10:39 pm

I disagree that employers should make a judgment for employment based on a persons credit history. No one actually knows what may have caused a persons credit score to decline. For instance, a married couple, both working, one loses a job and the other has to carry the weight of the household expenses which causes a strain on the finaces. Typically, this would change that persons credit rating. I believe a person should be judged on their criminal history, work history & skill level. Some people should not be so quick to judge or they could lose a very valuable employee.

A. H January 31, 2011 at 5:00 pm

I had to file for bankruptcy last year due to having to close my business which suffered horribly in the bad economy. I have NEVER been late on a bill and before my bankruptcy I had a credit score of 780. Now I need a job and can not find one, nobody will hire me because of my credit score and bankruptcy. I am a responsible hard worker why should I be judged because of my bankruptcy? It doesn’t make me irresponsible and my character and work ethic should be judged by it. It’s very unfair.

Chris Johnson June 9, 2011 at 6:22 pm

I disagree with allowing employers to screen people for employment using a consumer report.I am one of those who lost their job due to a store closure right after the recession hit. I am still looking for work. I had to rearrange my priorities with my unemployment check. I am single and live alone so I pay full rent, electric, car insurance, food, gas, and internet. After that there is hardly anything left. So I couldn’t make payments on my credit card that had its rates doubled thanks to the US government passing the consumer protection law. I also had hospital bills I couldn’t pay on. I need a full-time job so I can start making payments. Now since I have been long term unemployed they charged off the credit card.So for an employer to use my consumer report for an entry-level job to determine my viability for their company I feel is discrimination on a whole new level.Maybe if they went back and looked at my credit when I was still working, they will see I made my payments on time. Who knows but I know this. I may be looking to move to China renounce my US citizenship and beg for a job so I can at least make a living if the US can’t provide an environment for me to do so.

Jayson Quilantan July 27, 2011 at 1:23 pm

The FICO score is a proprietary formula… nobody but the credit scoring agencies know all the ins-and-outs of it!

To be truly useful, wouldn’t the formula need to be PUBLIC?

Too, it is all too easy to ruin one’s credit due to unexpected circumstances beyond your control such as transportation and health problems, etc. These problems tend to linger around unnecessarily on credit reports when the problem has long since been resolved.

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