Employee Reliability & FICO Scores

Megan McArdle writes:

There was a great deal of back-and-forth in the left half of the blogosphere this weekend over employers who use FICO scores as a way of weeding out job candidates.  In a sort of peculiarly American fashion, our nation seems to have decided that one's credit history is a good proxy for one's worth as a human being, and thus should be used to determine eligibility for everything from employment to excellent rates on car insurance.

I have no trouble believing that the FICO score is often a proxy for what some researchers call conscientiousness; I've certainly had roommates and others around me who had terrible credit because, well, they didn't bother to pay their bills, and regarded rent as something optional that could be turned in if no more exciting commercial opportunities immediately presented themselves.

That said, it's going to be at best a weak proxy.  It's also a proxy for things that, as a society, we may not want employers to consider, like a past history of depression.  And for things that have nothing to do with your job performance, like a car accident that left you with huge medical bills and no job, or a sudden job loss.  Looking at our national savings rate, lots and lots of Americans live very close to the edge of their paychecks; they can't all be terrible employees.

I have never really even considered asking employees for their FICO score, in part because all small business people hate these scores as, even with perfect credit records, our scores tend to be smaller than people with similar income and history due to the constant credit checks made on us by vendors and other partners.

That being said, as someone who has 500 service employees working for me, I understand the insatiable desire for information on employee reliability and conscientiousness.  A large number of our employees we hire who interview well tend to get released within 60 days of their hire.  I can't tell you how many people who seem totally normal and friendly turn out to be raving maniacs in stressful customer contact situations.

The elephant in the room that neither McArdle or folks like Kevin Drum mention is that businesses are starved for reliability information on potential employees.  It used to be the best source was to check job references.  Nowadays, though, very few employers will give a honest job reference, or will provide any information at all.  I know I am guilty of that -- my company does not allow any manager to give out performance data on past employees.  I only needed to be sued once over somehow interfering with someone's living by giving honest information about that employee's reliability to change my behavior.

I understand that this is exactly what the Left is shooting for - an environment where the competent have no advantage over the incompetent.  If employers are resorting to FICO scores, it just demonstrates how all the other reasonable avenues of obtaining information have been closed to them.

The only saving grace in this country is that employment is still mostly at-will, meaning we can fire our hiring mistakes and move on.  Of course the Left wants a European-style system where it is impossible to fire anyone too -- this is the system the post office has, and one can see how well it works out.  If they are victorious on this final front, I will be forced into a game of Russian Roulette, where I can't find out anything about those I hire, I can't fire the incompetent people I do hire, and I am infinitely legally liable for any mistakes any of these employees make.


  1. gn:

    Problems in getting a true measure of someone is, IMO, bullish for contract-to-hire ("try-before-you-buy") firms. Works great for our hiring of Java guys.

  2. Ted Rado:

    The company I worked for before I retired had a practice of using temps to fill vacancies in office help. After a few weeks, we could evaluate the person, and they could decide whether it was a place they would enjoy working permanently. It worked out fine. If we had someone who was not working out, we could get the temp agency to send out someone else. The end result was little risk for ourselves or for the new employees who accepted pemanent employment.

  3. LoneSnark:

    Did you lose the lawsuit? And how-come the credit agencies don't get sued for "interfering with someone’s living"?

    It seems to me that hiring a conscientious employee is worth a lot of money... Certainly someone can provide it. Perhaps a company can be created to collect honest employment history under a promise of secrecy, then release Employment Scores based on years employed, ratings given by employer, etc. As this company would be paid for accurate scores, it would have a strong interest in defending itself in any such lawsuits to the death, rather than folding as you did. It can collect employment information on everyone by offering employers a steep discount if the provide honest employment information.

  4. EscapedWestOfTheBigMuddy:

    LoneSnark: Even if he won, the suit doubtless added considerably to the costs of giving the subject a try at fitting in.

  5. smurfy:

    "And how-come the credit agencies don’t get sued for “interfering with someone’s living”?"

    Because, damnit, all that stuff they say about me is true.

  6. Chris Byrne:

    I'll leave the same comment I left at Travis's place:

    I have a real problem with the use of FICO score for MANY reasons, but the number one being, I work for a bank and I KNOW how bad a proxy the FICO is for actual reality.

    And just for kicks, here are a small number of the many other problems I have with it.

    There’s the fact that I’m now moving into my third decade of identity theft issues, along with at least 20% of all Americans (in my case, since a car accident in 1993 scattered my belongings across central Oklahoma).

    And of course then there’s the “60% or more of all consumer credit reports have major errors” issue.

    Then there are the privacy issues.

    Then there are the proliferation of information collection issues.

    Then there’s the information protection and security issues.

    Then there’s the actual federal law, numerous state laws, and thousands upon thousands of privacy policies and disclosure policies that say the information collected for credit purposes is only to be shared with the consumer, and those potentially offering the consumer credit.

  7. Dr. T:

    The fact that giving bad but truthful references can result in being sued led to a disastrous situation in New York state thirty years ago. An anesthesiologist who was suspected of molesting his patients did not get bad recommendations when he applied for jobs elsewhere, and his patient molestation streak continued for years. In response, New York enacted a powerful "sunshine" law that requires employers of physicians to report ANY negative situations to prospective new employers. The outcome, ironically (but, not surprisingly), is that recommendations still are worthless, because every practicing physician will have complaints from patients, relatives of patients, nurses, administrators, etc. Thus, almost every letter of recommendation for even the best physicians contains numerous negative incidents reported out-of-context. The net effect of the law is that it is difficult for a NY physician to be hired or given staff privileges by any hospital in any state, and many physicians are unwilling to work in NY because the cloud of negative comments will follow them until retirement.

  8. AY:

    Being in the business of performing background checks for employment purposes, I would point out that the use of the credit "score" is not allowed for employment purposes. The big three credit bureaus only provide the credit report - minus the score. I would say that there is not that much demand for credit reports, less the 20% of our clients request them. Criminal records on the other hand are in huge demand, almost every client runs some sort of criminal check.

  9. tehag:

    People are poor judges of other people. No matter what they say or think or how much experience they have, they're bad at it. Poor judgment accounts for hiring mistakes, con jobs, and politicians.

  10. txjim:

    AY - I'm convinced criminal background checks are another contributing factor explaining why the big corp IT depts are filled with foreign born folks. Particularly for positions having "moral character" type stipulations in industries like real estate and banking.

    No paper or bit trail and no way to check. I was shocked to see how many qualified people are not considered just because they got busted for a joint or bounced a check back in college. And if they were popped for any kind of violent offense, forget it. HR peeps envision Roland the Headless Thompson Gunner showing up for the interview.

    BTW my favorite interview question that has held up well for 25 years is "what was the last thing you built in your free time?". For some reason it works surprisingly well no matter the industry or type of position involved. Some struggle with answering and some can't wait to tell you what they accomplished. Guess which I favor?

  11. Brian Dunbar:

    What worries me about this trend is this: I'm in the process of getting off credit-debt. Going cash-only for purchases, putting money away in my savings account, etc. I won't care what my credit score is because I won't be buying anything on credit.

    Except ... hey ... a potential employer's HR can (will) use an odd score to circular file a job application. By working to become debt-free I've added yet one more ding to a potential job application.

  12. mark:

    I do think FICO and similar scores are overused. However there are some cases where I would think that it would be valid to look at a FICO score. A job as a bank manager for instance, or a bank examiner, stock broker.

    Basically if you have a poor score and have to deal a lot with other peoples money, it makes sense.

  13. joshv:

    Who knows how effective it is. But you can find out in your own business. Check a new hire's FICO score after you make the offer. File away these scores over a year or so of hiring and compare them to employee performance. If they are significantly predictive start using them to make your hiring decisions, if not, discontinue the practice.

    It would also be helpful if FICO scores came with a history. Somebody who had a recent drop to 500 after decades at 700 should be considered differently that somebody who's spent decades at 300.

  14. Craig:

    Good thing people these days put all their personal information on Facebook, blogs, etc. There's no law against using those sources to vet applicants (yet).

  15. Every Man A King:

    You don't have a political axe to grind, no sirree!! Why bring up "The Left" at all? Is this really a left/right issue? Can't someone on the right have the same issues that the commenter Chris Byrne does?

  16. Unix-Jedi:

    "I understand the insatiable desire for information on employee reliability and conscientiousness. "

    Yup. And as the liability for discriminating (as in the "right" hire and carefully considered, not from a racial perspective) hires has gone up, the liability for acquiring the needed info has gone up even more.

    Hire the wrong person, and when they screw up, their past history (usually unavailable to you) is fair grounds for the lawsuit against you.

    This is also why drug testing has taken off - as a proxy for being able to ask "Hey, is so-and-so a reliable person?" Doing drugs isn't an automatic proof that they're not, but it's the way to bet, and for liability reasons, it's a no-brainer.

    I once was talking to a guy who did car/airplane detailing. He had a huge insurance coverage, in case he dropped something through a Citation wing or etc.

    If he hired help, to clean, polish, vacuum or the like, his insurance policy required a 4 year college degree. I thought that was odd, until I thought about WHY that would be a requirement. Same sort of proxy.

    "We can't _say_ you can't hire someone outside Home Depot, or some random person you find, that's illegal. But it's fine to require a 4 year college degree, which hedges our bet by a lot that they're a _better_ risk."

  17. dr kill:

    good post, good comments. Nice work Warren and all/

  18. Jeff Weimer:


    It now all makes sense to me. As one who just completed a successful job search, I wondered why many of the positions required a bachelors when clearly any skill set obtained by a high-school diploma would more than suffice. The insurance requirement makes sense, even as the 4-year degree requirement essentially cheapens the degree.

  19. Chester White:

    Smart businesses that want to ding an applicant to another business without incurring liability will use the following wording, which intelligent people will be able to parse:

    "You would be very fortunate if you could get John Doe to work for you."

    If this comment is delivered in person, it is to be followed by a LONG WORDLESS STARE.

  20. John:

    "Perhaps a company can be created to collect honest employment history under a promise of secrecy, then release Employment Scores based on years employed, ratings given by employer, etc."

    The assumption there being that employers are uniformly honest and professional and would never give somebody a bad rating for petty personal reasons. I've worked for too many companies to believe that is the case.

  21. Crafty Hunter:

    I've always thought that the best way to ding a bad former employee would be to say in response to a reference inquiry, "Yes, this person worked for us, but the risk of a lawsuit make it too risky for us to say anything beyond that."

  22. sethstorm:

    Crafty Hunter:
    Problem with that is some companies will give that even if you left under good terms. They would be policy-bound to say that for every reference inquiry.

    As for temp-to-perm arrangements:
    They place more risk on the person seeking work in that they have to trust that the entire chain of employers is honest. Most likely they aren't and will string people along. Now if you gave the person seeking work a more secure footing, they won't have to worry about being disposed of due to a power-tripping supervisor or a dishonest person at a staffing agency(or both).

    Better to just make it so that the cost of temporary help makes it no better of a dodge to permanent, direct employment. If there are any actual mismatches, training can fix those in the context of actual employment. If someone happens to like temporary work, they can do it. If someone likes permanent employment, they dont have to worry about middlemen in between them and the work to be performed.

  23. Dal:

    The part that drives me nuts is that the company I worked for went out of business. At the same time, the economy went into the dumps. I was off work for 9 months, got behind on some bills (though I haven't checked recently, I'm sure it has adversely affected my credit score). I am in a job now that I make 1/4 of what I made before and barely able to keep up with the bills. So if my score drops, then I become a "risk factor" and can't find a decent job that pays enough for me to get caught up and back on my feet. I would be stuck in a job that continues this downward spiral. It's a vicious cycle and, in my opinion, an absolute horrible way to evaluate a potential employee. With unemployment as high as it is and no signs of it recovering, how will we ever be able to crawl out from this hole?

  24. IgotBupkis, President, United Anarchist Society:

    > Then there’s the information protection and security issues

    Yeah, 'cause, you know, things like this just never happen. One's credit score is clearly an accurate and true representation of the reality of one's employment qualities. Nothing could ever compromise that.

  25. IgotBupkis, President, United Anarchist Society:

    > Sethstorm -- Crafty Hunter: Problem with that is some companies will give that even if you left under good terms. They would be policy-bound to say that for every reference inquiry.

    Indeed, the last company I worked for had a policy of providing "name, rank, and serial number" for ALL former employees, regardless of reason for separation, and THAT only after a written request. Individuals in the company were forbidden to provide any "official" letters of recommendation -- that is, they could write one, but not as an individual working for the company.

  26. Bill Drissel:

    @gn: One place where I consulted, a contract employee did a splendid job until she was hired. The group leader was a buddy and he guessed she was taking the work (computer programming) home and getting help.

    (Sigh!) There is no utopia.

    Bill Drissel