Credit Scores, Criminal Background Checks and Hiding the Bad Apples

A number of people (Slacktivist, Kevin Drum, Matt Yglesias, Megan Mcardle) are debating the use of credit scores in employment.  Credit scores are useful at predicting all kinds of things including, for example, car accidents so there is good reason to believe that they are useful in employment. The above commentators tend to focus on the potential for scores to hurt the poor but that is not obvious.  Consider a similar issue: Should employers be allowed to use background criminal checks when hiring?

One argument against is that black men are more likely to have criminal backgrounds and thus these criminal background checks discriminate against black men.  Let's put aside the normative issues. What’s surprising is that under plausible circumstances criminal background checks can lead to an increase in the employment of black men. The reason is that without the background check employers face a risk that their employees are ex-cons. If employers are very averse to hiring ex-cons then they will seek to reduce this risk and one way of doing so is by not hiring any black men. As a result, a background check allows non ex-cons to distinguish themselves from the pack and to be hired. Furthermore, when background checks exist, non ex-cons know that they will not face statistical discrimination and thus have an increased incentive to invest in skills.

Consistent with this reasoning, although not demonstrative of the net effect, Holzer, Raphael and Stoll find that:

…employers who check criminal backgrounds are more likely to hire
African American workers, especially men. This effect is stronger among
those employers who report an aversion to hiring those with criminal
records than among those who do not.

My view is actually that criminals face too many post-crime impediments to reintegrating themselves within the workforce.  Private incentives not to take a risk on an ex-con do not cohere with social incentives to reintegrate workers into society and thus we get too little hiring of ex-cons.  As a result, ex-cons face a low opportunity cost of recidivism.

Nevertheless, banning criminal background checks or credit scores is probably not the best way to combat these types of problem.  Banning criminal background checks increases the incentive to rely on less accurate statistical discrimination which discriminates against the innocent and reduces the incentive to invest in skills.  In short, hiding the bad apples among the good comes at the expense of the good.


Of course, one difference between a criminal background check and a credit score is that a criminal conviction is a matter of public record, whereas a credit score is a proprietary piece of information based on whatever the credit scorer wishes to use as data, without any need to worry about the accuracy of that data.

And at least in the case of the Slacktivist example, there appears to be evidence that the number of credit checks within a period of time has a negative impact on one's credit score, which means that someone applying for work, and whose credit is checked by 10 prospective employers in a fairly short period of time will have a worsened credit score simply by trying to find employment - thus reducing their chance of being employed by a company which considers a credit score relevant to the hiring process.

In other words, one is penalized by being unemployed and seeking work, while the credit scoring company is able to sell its proprietary (and if previous experience is any guide, often inaccurate) information to prospective employers, without any oversight. One can see a certain problem with this, as long as one is not profiting from the process - which is why credit scoring companies are so eager to avoid this entire discussion, of course.

One way of checking the sincerity of those who say employers shouldn't do background checks: Are they willing to also immunize employers and businesses from negligent-hire and negligent-entrustment lawsuits when they do in fact hire ex-cons and those ex-cons commit crimes on the job.

Example 1: Mattress Jumbostore receives an application from A, who has several prior convictions for felony assault. They hire him despite the criminal record. When delivering a mattress to a customer's home, he proceeds to rape the customer. Should the employer be immunized from both negligent-hire and respondeat superior liability?

Example 2: Deliverymart hires B, who has prior convictions for possession of cocaine and PCP. While driving their truck, he drives recklessly and gets into an accident. Should Deliverymart be immunized from both negligent entrustment and respondeat superior liability?


A credit check is not simply a 3 digit number. The credit report will come with statements that list the largest factors influencing the credit score. If multiple credit checks are influencing the score, the report will state that and the employer can take that into account.

Credit checks can be inaccurate, in ways that can either help or harm a job or credit applicant. Inaccurate information can be removed from a credit report without much difficulty. In addition, accurate, but derogatory, information can sometimes be removed from credit reports as well, and information on how to "game" the process is available on the corners of the internet where people discuss personal debt and credit. A serious background check would need to go further than just a credit score.

"People with bad credit are punished without due process for something that's not against the law."

Why would anyone have a problem with that? When you give the silent treatment to your wife for buying those expensive shoes, you are punishing her without due process for something that's not against the law!!

The above commentators tend to focus on the potential for scores to hurt the poor but that is not obvious. Consider a similar issue: Should employers be allowed to use background criminal checks when hiring?

One obvious difference between these examples is that not all black men have criminal backgrounds, but everyone with a negative net worth and who has never made over $30k/year has a bad credit score. Net assets and income are the overwhelmingly dominant factors in credit score, for all that people like to moralize about paying bills on time and not spending beyond your income (and when your income isn't enough to make rent and groceries, you have little choice but to spend beyond it, in any case). Even assuming that you could somehow divide the poor into "good" and "bad" poor, they both have bad credit scores, so credit scores won't help distinguish them. Instead, credit score discrimination will keep out *all* the poor, and let in the middle class -- even though they may not be any more qualified to do the job.

Also, most criminal behavior is willful; it's rare to be convicted of a crime for unintentional acts (except wrongfully, of course; both kinds of records can contain errors, but that's true of any information available to make a hiring decision). Most poor people were born poor and simply haven't managed to overcome the obstacles to fighting their way out of that pit. And if they're discriminated against in hiring, they probably never will overcome those obstacles.

Could you please provide some research regarding the usefulness of credit scores for "...all kinds of things including, for example, car accidents..."? I know there's been some work done with credit scores and obesity, but has there been any serious, publishable work on this topic?

By the way, people aren't generally competing against others that have an enormous credit score difference. They are competing with people in similar situations. Adding credit scores is in one sense just more information for the evaluator to stratify. Chances are, especially now, if there is not enough information available to differentiate they will hire noone.

Has anyone else been disappointed with the quality of the comments of the last two posts?

Because, rather than employers drawing upon whatever data we can get their hands on for decision making what we need is the government to come up with a government certification stamp of employability!

Oh, wait, the government already has them for 12 years, and in the case of criminals a few more- as long as they want them in fact.



Credit Score is not like SAT score or something like that. It's simply a measure that credit lenders use to determine your interest rates (how lending worthy you are) This information could be useful to employers as a gauge of generally how responsible you are in your personal life. (did you take out an un-afforable loan for an unnecessary luxury item?) Usually being personally responsible with your finances translates to professional responsibilities. I am not an employer, but It's my guess that employers are less interested in the absolute score, and more interested in red flags like large outstanding consumer credit card loans and good flags like mortgages being paid on time. If you always pay your mortgage on time then the employer can reasonable assume that you'll come to work consistently because you value a consistent income stream.

To Joe-Employer it does not matter if the formula is proprietary, if it's good enough for for Insurance companies/banks/etc, it's good enough for him. If you're diligent in keeping the record accurate, all the better.

Slacktivist has already mostly corrected it, but employer credit checks DO NOT affect your credit score and are not visible to anyone other than the applicant. Employment checks are always soft inquiries, not hard, and as such are only visible on credit reports pulled by the subject of the credit report.

[i]One obvious difference between these examples is that not all black men have criminal backgrounds, but everyone with a negative net worth and who has never made over $30k/year has a bad credit score. Net assets and income are the overwhelmingly dominant factors in credit score, for all that people like to moralize about paying bills on time and not spending beyond your income (and when your income isn't enough to make rent and groceries, you have little choice but to spend beyond it, in any case). Even assuming that you could somehow divide the poor into "good" and "bad" poor, they both have bad credit scores, so credit scores won't help distinguish them. Instead, credit score discrimination will keep out *all* the poor, and let in the middle class -- even though they may not be any more qualified to do the job.[/i]

This is simply incorrect. Net assets and income are not calculated in credit scores at all. Experian, Equifax, Transunion, & Fair Isaac do not have access to this data, so there's no way they could use it. The overwhelmingly dominant factor in credit scores is payment history, with % of credit used in second, with your inquiries, mix of credit, and length of credit history significantly less important.

Its very simple for the poor to have good credit. Pay your bills and don't keep your credit cards maxed. You will have excellent credit. Even if you have high balances on your cards, a good payment history will at least keep your credit score in the decent range.

I really doubt employers are looking at credit scores to differentiate between a 600 and a 750. They just don't want to hire the guy with a 500. Though I think credit scores are kind of a lazy option for this purpose. Just look at the actual report and look for excessive late payments, bankruptcy, and ridiculous credit card balances. If the applicant is otherwise a very good candidate, you could then bring up your worries about these specific issues with him or her and see if they relate to issues of irresponsibility.

Inquires for credit cards, auto loans, and home loans affect your credit score. Employer views and banks looking to extend credit without an applicaton(like pre-approved credit offers) do not. To whomever said "net assets and income are the overwhelmingly dominant factors in credit score": That may have an indirect bearing but Payment History and Account Balances versus Credit Limits are the two dominant factors(with the type of credit mix and age of your credit file
being other major factors.) Your use of net assets and income affect the score, but not necessarily badly. I've never made over $30,000 and have a good credit score.

Does anyone here work in human resources and have an idea on how credit reports are used? Is it just the number, or the appearance of negative accounts/ bankruptcies that matter?

Most importantly, I've never applied for a job that held credit score as a relavent factor. High end positions use this; rarely does the stock boy get his credit checked. Isn't competition for high end jobs, you know, high, and isn't the differences between candidates fairly small. Credit reports are just one more factor for differentiation.

I don't make much money but I don't see why it would be unfair to rate me on my credit score. In fact, I think it differentiates me in a benificial way from those with similar backgrounds.

'Credit Score is not like SAT score or something like that.'
I have been a bit casual in terminology here, using 'credit score' to represent the entire spectrum of information sold by those organizations. 'Credit report' works equally well, and provides a much better idea of the sort of information an employer can buy.

'I really doubt employers are looking at credit scores to differentiate between a 600 and a 750.'
Just a decade or two ago, the same thing would have been said about mortgages - and look at what happened. The companies involved in selling credit information are interested in revenue streams, and apart from attempting to find new uses of credit information in which to earn a profit, are utterly uninterested in whether a buyer of that credit information is not using it 'correctly.' As long as the information is bought, any use, correct or incorrect, is no longer the responsibility of the seller. Neither is its accuracy, either.

And the information sellers don't want to have it any other way.

Many people do not understand and therefore misuse FICO. It is primarily a measure of creditor PROFITABILITY from the borrower. Many FICO components penalize you for prudent financial decisions such as persistently low balances, transferring balances. The credit report does include information useful for credit rating though.

'How dare one private person sell information to another person!' Demonstrably false information, in far too many cases - but hey, why shouldn't there be a market in someone selling whatever they want, with no guarantee of it actually being accurate?

'The government should control every aspect of every person's life...'
Why? I simply point out that a significant amount of the data collected for credit reports is demonstrably inaccurate, with no guarantee made on the part of the seller of its accuracy, and this leads to me calling for slavery?

At no point did I even bother to mention the government - after all, anyone intelligent enough to know how flawed such credit reports can be is intelligent enough not to buy them is not really an unreasonable position, and one I would certainly encourage. Even though, sadly in the case of the now thoroughly bankrupt companies involved in using credit scores in approving mortgages, some people seem to have felt that the information being sold actually had some value - which as is demonstrably case in that example, was not true.

whereas a credit score is a proprietary piece of information based on whatever the credit scorer wishes to use as data, without any need to worry about the accuracy of that data.

Well, any reference (offered and not offered by the applicant) you use to assess an applicant is the exact same thing. Should we also ban the use of asking for references from third parties?

'Should we also ban the use of asking for references from third parties?'
Of course not - but do you think a reference from an applicant's mother should be granted equal weight to that of a previous employer? Which is why the source of a reference is considered a significant piece of information, one that a company does not have to pay for when evaluating an applicant.

And yet, in the case of a credit report, the information is handled in a manner which makes it impossible to actually judge the data to any major extent - much as if the two written references noted above arrived without any information as to its source. And for which you had to pay - with the seller making no guarantee as to accuracy, and only allowing access to that information at the cost, and to the extent, set by the seller. It really seems a mugs game to play, and yet - alls well, as long as someone profits, right?

To start, I'd say, typically, the comments are very informed here at MR.

But, both Alex's posting favorably comparing criminal background checks to credit checks - and the comments backing him up - are dissapointing and terribly naive. I am a young law student at an Ivy league law school and I have terrible credit (thankfully I am able to get some sort of loan for school). I made some poor choices in my credit card spending habits as a late teenager and I have paid for it in being unable to take out large loans at decent rates. Was I irresponsible ten years ago? Surely. However, part of my current poor credit score is also the fault of the credit bureaus who have consistently refused to correct mistakes on my credit report. To those that are commenting that it is "easy" to correct credit bureau mistakes, have you ever tried to correct a mistake on your report? I doubt it. Stop commenting on stuff you know nothing about.

But I have otherwise excellent credentials, good grades, great degree. The margin between applicants for the jobs to which I am now applying is extremely small. The commenters are telling me I should be dinged for a job because of poor decisions I made ten years ago? Again, there is virtually no difference between candidates, the employer wants an excuse to weed out applicants, using credit scores from years past is about as arbitrary as using kindergarten IQ tests.

This is a burden of proof issue. The credit scores haven't predicted my success since college and won't serve as an accurate prediction going forward. Even assuming, in some cases, it DOES predict employee performance, why should the burden of proof be on the employee to disprove credit scores that are a result of a temporary cycle of bad luck and poor decision making?

1. The credit agencies do not work on behalf of the consumers/employee and have no incentive to keep honest records. Unlike background checks, there is no jury, no trial, no conception of fairness at all.
2. People who are out of jobs and are most likely to have bad credit from delaying paying bills or trying to restructure mortgage payments (the bad credit is not from outrageous purchases, come on, let's get off the welfare queen myth already)
3. individuals with otherwise excellent credentials, who have worked hard to recover from their debts, will be needlessly dinged at job interviews in favor of trust fund children who always had the cash to recover from bad luck or poor choices.

And to the commenter who said that the employer will "not choose anyone" if they don't have the credit score? What?

I've been a part of hiring decisions when my company's criminal background check we run on every applicant turns up a conviction. In most of the instances, we have ignored the criminal conviction and hired the person anyway. As long as it wasn't for theft or a violent felony, my company did not think it was a negative. Old drug convictions, prostitution, etc., were not bars to employment. I suspect that many companies are like this - as long as it's not for theft or violence or a very recent drug offense, why not hire the candidate if they otherwise seem like the best?

If a company is not hiring the best candidates because they intentionally discriminate against anyone with a criminal record, even for victimless crimes, then they are making the same kinds of inefficient hiring decisions that, like most forms of prohibited discrimination, will ultimately result in other companies outcompeting them.

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: or shoot us an e-mail at with†sign me up† in the subject line.


I think you are missing my point. An applicant has pretty much the same amount of control over a potential reference as he does his credit score. If we are to ban the use of credit reports in the assessment of applicants, do we also ban the practice of calling up former employers, supervisors, and colleagues? I am not sure what the argument really is for doing one and not the other.

It would be pretty funny if they used credit scores in hiring, because I'm pretty sure I've always had higher scores than my bosses.

'An applicant has pretty much the same amount of control over a potential reference as he does his credit score.'
Absolutely not, leaving aside fringe cases where the references chosen to submit/provide were chosen in an exceedingly flawed or stupid manner.

Which is the crux of the matter - a credit report is simply information as provided, for profit and without guarantee of accuracy, and where, to be generous, the ability of the person being reported on to challenge factual errors is not convenient.

And no where have I suggested that companies are not privileged to waste money purchasing information that comes with no guarantee of accuracy, merely that the lack of awareness of how inaccurate that data can be, even as many people consider it flawless. People who clearly either have never dealt with a credit agency in terms of disputed data (I haven't - I have never had a credit card or any loans, which makes me a terrible credit risk, at least from past reading into credit reporting as practiced in the U.S.) or with databases in general.

And yet, the defensiveness of some when another points out the reality of just how flawed the American system of credit reporting is, has been fascinating. Particularly since merely talking about the provable flaws of the system is apparently considered the equal to wanting to ban credit reporting entirely, or at least in regards to employment decisions. I could care less, actually - the system plays no role in my life at all.

create a straightforward statute that does not allow a credit agency to divulge consumer credit records without a subpoena.

But why stop there? Why not make it illegal for anyone to disclose anything about you that they know, like, for example, that they thought you were lazy or incompetent in your last job? In other words, what is so special about credit reports? Are they really less reliable in some some way than the opinions of those who have known you personally?

Anderson, you don't have a right to be hired by said employer either. It would seem that the source of credit who provides the information is responsible. But you don't have a right to receive credit without anyone hearing about it either.

'Are they really less reliable in some some way than the opinions of those who have known you personally?'
Yes - because the opinions of those that have known you personally are opinions, and thus subject to informed scrutiny when making decisions based on those opinions. Whereas the credit report is sold for profit, with no guarantee of accuracy, and is yet treated as wholly factual information, while not allowing one to actually see the circumstances resulting in that credit report - such as false data entry.

Agree with the hiding the bad apples among the good affecting the good. However there is one point I'd like to make against the analogy between criminal background check and credit check.

While a criminal background is 'bad' in itself, a poor credit score is only claimed to be indicative of a bunch of negative attributes.

Has this relationship beeen demonstrated convincingly? I would imagine there'd be a lot of qualifiers here.

And even if that were to be demonstrated, there is still a leap between 'perceived responsibility' and on-job performance.

Ideally what is needed is an analysis on the relationship between credit scores and on-job performance: say pay increases, evaluations etc.I believe this sort data would be available for academic analyses.

Without this, adopting credit checks in hiring, may not be appropriate as we'd be inferring from a correlation of a correlation of a correlation.

'I believe this sort data would be available for academic analyses. '
Nope - credit information can only be purchased from the providers of the credit reports, and they determine what information is provided (without guaranteeing its accuracy) and at what cost - and, to an extent, to what purpose that information can be used (republication, for example, is not permitted). It is a business, and as a business, they have no interest in either oversight nor research, apart from the sort of research that can extend their ability to sell information. Any other research involving their data or methods is easily prevented, as the credit reporting companies claim that the information they collect, and the methods used to evaluate it, are proprietary.

'If there are errors, it behooves the applicant to let me know of any they are aware of.'
Since when did it become my job to check and correct information that is collected about me by an organization whose sole goal is to profit from that collected information? Especially in light of the fierce resistance those organizations showed previously to having anyone in a position to review that collected data, and the even more determined resistance to actually having to correct that data, since the business model does not rest on accuracy, but simply selling collected information - beyond a certain minimum point (obviously met in the past), increased accuracy reduces profitability, after all, as it becomes a cost.

"Does the concept of "none of your business" have so little play any more? Does it occur to no one that an employer really just has no right to know one's credit score, or one's sexual history, or one's political views, or anything else not directly related to one's skills for the job in question?"

I agree with the concept, but here's an example of the unequal bargaining power between employer and employee. Employers can and do make job applicants grovel, because there are a small number of employers and a much larger number of employees.

' is a history of your public interactions with people who lend you money.'
I think someone may be a bit confused on the idea of 'public transactions' - intercepting the transmission of a credit card number at a POS terminal is against the law, since the transaction most certainly is not considered public. This lack of being a public transaction extends in many directions, by the way. What it is, however, is a transaction of which one party has often consented to having information shared for the benefit of other parties, all those other parties interested in their own profits. Though why my payments to a public utility should be made a public record which is then resold in the form of a credit report utterly escapes me - keeping my balance correct at the utility is not the same as agreeing to the terms and conditions of a credit card. Well, at least in the past - the idea of 'universal default' gained ground only after enough private information could be profitably collated so as to increase revenues among a number of companies.

'In fact, there seems to me to be some public interest in this being non-private information.'
You first - please publish all of your credit transactions, account balances, and of course, any additional information (such as address, telephone number, employer, etc) necessary for this information to be collated and to give it at least a chance of verification. For your privacy, you can leave off your Social Security/Taxpayer ID number (not everyone in the U.S. need bother with a Social Security number, at least until very recently) and your bank account numbers - though of course, if we have any suspicions (do you really pay that bill 6 years ago?), that information will also be necessary.

Oh - and you can only buy this information from us, by the way. Have a nice day.

Research indicates that credit scores have nothing to do with job performance. Criminal background checks are much more useful at determining a character issue. Even though there is no research in support, employers contend that they need the information for risk assessment as one with poor credit would be more likely to steal. As the EEOC has stated, there is no research in support of this. Most bankruptcies, about 75%, are due to job loss and/or medical bills, neither of which reflect a person's character. Credit is so subjective and is often due to bad luck and not character or honesty flaw. A study by Eastern Kentucky University, in contrast to original hypothesis, showed that not only was credit reports of no use in predicting negative job performance, there was a positive correlation between high job performance and late payments. To not hire someone due to poor credit as a theft risk is not only wrong but really a violation of the American principle requiring the "presumption of innocence until proven guilty." A criminal background deals with prior convictions. Using credit to make an assumption of honesty or lack thereof and punish someone for something they haven't done is unjust and unamerican. HR3149 should be passed into law without delay and is already long overdue. The use of credit reports is only a financial boon for the reporting agencies and a way for the banks and elite to keep their heel on the throat of we the people, taking that position of "how dare you think you can miss a payment for any reason...I don't care that you have cancer or got laid off or both." Is that the type of position we want to protect in this country "OF THE PEOPLE, BY THE PEOPLE, AND FOR THE PEOPLE?" Too many have really lost their way in this country with respect to what this country is supposed to stand for.

It is true that criminals face many post-crime impediments, however it is very important for employers to protect their business as well as their employees. Background checks are an excellent way to do this. My company explains it well in this article.

Apparently, getting a job offer is such a huge favor bestowed on us that we are supposed to sacrifice every shred of dignity and privacy in order to obtain one.

What bullshit! Are these employers too stupid to know that every candidate they get are just there for money? What impudent statements in the above paragraphs. I do a job as best I can so I can GET PAID- no matter what bullshit line I fed my boss in an interview. I'll do my best to keep the company profitable- FOR MY OWN SELF WORTH! My concern for the solvency of the company is non-exsistent until I have a paycheck bounce. I work to make money and that is all.

Really, the only solution is for employers to exercise a little common sense when relying on criminal background checks. The solution is certainly not to ban them.

I mean, if someone got a DUI 15 years ago, that shouldn't matter very much, in most jobs. However, if you got out of jail last year for child abuse, you probably shouldn't complain when a daycare center refuses to hire you on that basis. This honestly doesn't seem complicated.

Credit checks are no longer allowed in Illinois for pre-employment background checks. Big step forward.

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