Credit Ratings

[GGT]

What do individual Credit Ratings actually reflect, and do you consider them to be reliable?

How should personal Credit Scores be used, and by whom?

Should employers use Credit Ratings as a metric for job applicants?


This is a duplicate thread of sorts, we had a similar debate a while ago, but it's outdated by now. In the aftermath of the Housing Bubble and Financial Crisis, with so many foreclosures and bankruptcies, and millions of people stuck with "bad debt" and crappy Credit Scores....I figured it's time to revisit the issue.

Particularly since Institutional Credit Ratings have largely recovered, even though they helped create the pyramid of toxic debt in the first place.

[Timbuk2]

What do individual Credit Ratings actually reflect, and do you consider them to be reliable?

They reflect an individual's Credit history.
Yes I consider them reliable.

There have been issues, in the UK at least, of people finding entries on their credit score that do not pertain to them, and such erronneous entries have proven hard to remove.

But since credit ratings are now readily available for anyone to check, and the process of how those ratings are compiled much better communicated and understood, it is now a less mystical and more reliable process than it was a number of years ago.

How should personal Credit Scores be used, and by whom?

By any business or agency for whom an individual's credit history is relevant. Further than that, credit ratings are used by lenders to assess risk, and price any credit sold accordingly.

Secured and unsecured credit providers, retail credit providers, small-business lenders, those applying for directorships, landlords and rental agencies. For some of the main examples.

Should employers use Credit Ratings as a metric for job applicants?

Working in financial services, I have always been credit checked as part of the employment pre-screening process. I don't believe credit checks are used as widely in other industries.

It does not reflect well upon a person if they cannot adequately manage their finances, and that is relevant to a job application, particularly one that involves some aspect of finance or handling money.

However it may be less relevant or entirely irrelevant in other fields. If a handyman applies for a job as a painter at a Painters and Decorators, I don't believe he should be credit checked, as a low credit rating has no bearing whatsoever on his ability to paint a wall.

[GGT]

....Working in financial services, I have always been credit checked as part of my job applications. I don't believe credit checks are used as widely in other industries.

What if you're wrong in that assumption?

It does not reflect well upon a person if they cannot manage their finances, and that is relevant to a job application, particularly one that involves some aspect of finance or handling money.

What about the people who "manage" their finances well, but suffer a medical emergency or natural disaster outside their control? Should a cashier position at Walmart, which includes 'handling' or transacting money, exclude people with low Credit Scores?

However it may be less relevant or entirely irrelevant in other fields. If a handyman applies for a job as a painter at a Painters and Decorators, I don't believe he should be credit checked, as a low credit rating has no bearing whatsoever on his ability to paint a wall.

I'm thinking very few employers should use Credit Scores for employment, because they don't reflect an ability to do the job.

[Lewkowski]

GGT no system is perfect. If someone bombs an interview are you going to scream out "not fair, not everyone is good at interviews?" Credit scoring is used by A LOT of organizations, while I haven't looked in depth in the issue I can say based on logic that if credit scores weren't correlated well to some attribute they would not be used in the hiring process.

[Dreadnaught]

Is this related to the Elizabeth Warren proposal that businesses not be allowed to run a credit check before hiring someone?

If so, I'm sympathetic to the view that one's credit rating shouldn't be a factor of hiring in most jobs. It could be instructive in hiring decisions, but that doesn't mean it's a practically or morally iron-clad approach.

[Timbuk2]

If so, I'm sympathetic to the view that one's credit rating shouldn't be a factor of hiring in most jobs. It could be instructive in hiring decisions, but that doesn't mean it's a practically or morally iron-clad approach.

Precisely. It's just one possible metric among many.

[GGT]

GGT no system is perfect. If someone bombs an interview are you going to scream out "not fair, not everyone is good at interviews?" Credit scoring is used by A LOT of organizations, while I haven't looked in depth in the issue I can say based on logic that if credit scores weren't correlated well to some attribute they would not be used in the hiring process.

1. Credit rating agencies, in general, have been exposed as unreliable (if not fraudulent, like AAA institutional/investment ratings that turned out to be bogus during the '07-'08 financial meltdown).

2. The three main Consumer Credit ratings agencies are basically data-miners, prone to using erroneous 'data', and mistakenly giving low scores. Examples: dinging a score when a credit account is closed by the issuer due to inactivity, or during ID theft investigations; using foreclosure claims that turn out to be mortgage company robo-signing/clerical mistakes.

3. It can take months for a consumer to correct mistakes made by the rating companies, or third party crap 'data'. Meanwhile, they can lose that chance to re/finance a home....or a job opportunity.

4. Credit issuers solicit people with low credit scores, knowing they can profit from penalties and fees from cash-strapped consumers.

Now, what "attribute" do you think employers glean from credit scores, that help them predict job ability and work performance? Sounds like circular reasoning -- it's a good metric because they're used by a LOT of organizations, and because they're used it's a good metric?

Is this related to the Elizabeth Warren proposal that businesses not be allowed to run a credit check before hiring someone?

If so, I'm sympathetic to the view that one's credit rating shouldn't be a factor of hiring in most jobs. It could be instructive in hiring decisions, but that doesn't mean it's a practically or morally iron-clad approach.

Yes, I heard about this in the news the other day. I didn't mention Warren or her proposal because it's just a floater at this point, but I wanted to hear what folks think about potential employers using Credit Scores as a basis for hiring. Particularly for younger people who may not even HAVE a credit score....and maybe didn't want to play the Credit/Debt game scheme.

[Dreadnaught]

Some say that people who handle finances (bank employees, etc) should have a reasonable expectation of having a credit score check, as those who have substantial credit problems are possibly not good candidates to handle money or accounting. What think you of that? I'm honestly not sure what I think.

[Lewkowski]

Lets flip the question GGT - why do you think businesses spend time and money using credit scores and credit profile in hiring decisions?

[GGT]

Dread, it makes sense for banks, or sensitive gov't jobs requiring security clearance, to screen for people who could be "motivated" to skim or steal....but only as one part of a comprehensive hiring process.

Lewk, I think many businesses use credit scores because it's become a common, cheap, and easy way to quickly reduce piles of applications. And because they've bought into the hard-sell by ratings agencies that it will not only save them time and money, but "protect" them from "bad element" workers.

Ironically, most employees caught cooking the books, stealing merchandise, or pocketing cash....were hired with perfectly good credit rating scores. Recent news on business theft (especially retail) shows the internal majority comes from middle management. So why DO businesses spend money on a 'service' that doesn't deliver promised results? It's not like outcomes are measured by the "bad element" workers who were never hired.

[Lewkowski]

It wouldn't be hard to test it - hire one group w/o credit rating review and hire another with and see if performance is different (assuming other factors are similar).

[Loki]

I'm guessing that the real reason for using credit ratings is that they correlate with other moral failings. I would guess that most people with bad credit scores have problems with making good decisions. Of course this screws people who have bad credit scores for reasons outside of their control (family illness, unexpected layoff, etc.) and it doesn't weed out all bad apples, but why take an unnecessary risk? If eliminating candidates with bad credit scores removes half of the unreliable workers, why not make that choice?

[Being]

I'm guessing that the real reason for using credit ratings is that they correlate with other moral failings. I would guess that most people with bad credit scores have problems with making good decisions. Of course this screws people who have bad credit scores for reasons outside of their control (family illness, unexpected layoff, etc.) and it doesn't weed out all bad apples, but why take an unnecessary risk? If eliminating candidates with bad credit scores removes half of the unreliable workers, why not make that choice?

I believe conjugal fidelity would be a better gauge than credit scores, but that is illegal; you can't even ask if an applicant is married.

[Loki]

You make due with the information you can obtain. That's life.

[GGT]

I'm guessing that the real reason for using credit ratings is that they correlate with other moral failings. I would guess that most people with bad credit scores have problems with making good decisions. Of course this screws people who have bad credit scores for reasons outside of their control (family illness, unexpected layoff, etc.) and it doesn't weed out all bad apples, but why take an unnecessary risk? If eliminating candidates with bad credit scores removes half of the unreliable workers, why not make that choice?

Moral failings? Bad decisions? Wow, if that's the metric for hiring, then credit ratings are even less predictive....based on bad behaviors, and risky decisions, made by Executive and Financial 'elites'.

We'll see how the latest Target credit/debit breach (of some 40 million shoppers) will play out in personal credit scores. Citi and Chase are limiting daily withdrawals to $200/day in response. And we all know Citi and Chase have such great institutional credit ratings, huh.

[Loki]

Your ability to make use of non sequiturs never ceases to amaze me.

[GGT]

Your ability to make use of non sequiturs never ceases to amaze me.

Your refusal to take a comprehensive, critical look at anything connected to financial institutions is always disappointing. You're not incapable of that discussion, or thinking outside the box, just too focused on personal digs instead.


Moving right along. Should college/university applications include a Credit Check? Would it be for the individual student and/or their parents, with or without student aid or student loans? Should public student loans or grants mandate a minimum individual Credit Score? How about ratings agencies assigning a "default risk" for certain majors or degrees with low post-grad employment rates?

[LittleFuzzy]

Your ability to make use of non sequiturs never ceases to amaze me.

We're just lucky she hasn't linked credit checks and high frequency trading.

[Flixy]

You make due with the information you can obtain. That's life.

Yes, but the question is whether it should be allowed, as some other things are illegal to use. It's the kind of thing that also makes it harder for people who try to better themselves, which I imagine is very frustrating when things like this are extra hurdles.

[GGT]

We're just lucky she hasn't linked credit checks and high frequency trading.

Oh, but I could! At least from a journalism/news angle that's pretty crappy covering the financial world, new investment 'tools', and informing the general public. I could also link these things to lax consumer protections, because our legislators are political puppets of big money donors and industry lobbyists.

[Loki]

Yes, but the question is whether it should be allowed, as some other things are illegal to use. It's the kind of thing that also makes it harder for people who try to better themselves, which I imagine is very frustrating when things like this are extra hurdles.

Should it be allowed to not hire someone based on how they dress? On how they walk? On their accent?

[GGT]

Those are directly observable traits that might affect job performance. Depending on the job, of course.

That's different from using a third party entity, that earns its money using flimsy or unproven correlations between job performance and personal credit or debt.

[Loki]

How someone walks affects their job performance?

[Khendraja'aro]

Of course.

If I walk into a lamppost or an open elevator shaft, that will very definitely affect my work performance.

[GGT]

How someone walks affects their job performance?

Sure, just ask people or agencies hiring "Dog Walkers".

[Hazir]

Credit ratings are just a signal of the craziness in the world in financial matters. People like me probably would have a horrible one for no other reason than that I lack a sufficient trail; not using any other credit facilities than a credit card that I don't actually use for credit reasons does that to you.

I experienced how that worked out when I wanted to get a relatively small sum of money in order to buy my present apartment.

[Lewkowski]

Credit ratings are just a signal of the craziness in the world in financial matters. People like me probably would have a horrible one for no other reason than that I lack a sufficient trail; not using any other credit facilities than a credit card that I don't actually use for credit reasons does that to you.

I experienced how that worked out when I wanted to get a relatively small sum of money in order to buy my present apartment.

Outside of being an authorized user on one CC I had no credit history when I applied and got a position with a company that did a credit check on me. It seems far more likely that they are checking for bad stuff.

[GGT]

What kind of "bad stuff" on a credit report should be used against a job applicant?

[Lewkowski]

What kind of "bad stuff" on a credit report should be used against a job applicant?

I'd assume a history of not paying bills. Maybe that and a combination of high debt and excessive credit card usage.

[Ominous Gamer]

I'd assume a history of not paying bills. Maybe that and a combination of high debt and excessive credit card usage.

A credit check would also show medical issues, since its the largest cause of bankruptcies in the US. Nothing like being out of pocket 50 grand for an unpreventable illness like appendicitis. Why would an employer want to risk messing with its insurance premiums by hiring someone facing 6 figure cancer bills?