Thursday, July 22, 2010

Credit Scoring and Long Term Unemployment

Fred Clark:

MSN Money's Liz Pulliam Weston says a survey of HR managers found the use of credit-checks in hiring had increased from 25 percent in 1998 to 43 percent in 2006. Weston also describes the elegantly nasty conundrum this creates for those who lost their jobs in the global financial crisis:

Many Americans these days are discovering the Catch-22 of unemployment. And that is: You might fall behind on your bills because you've lost your job, and you might not be able to land a new job because you've fallen behind on your bills.

It's even worse than that, actually. One component we've identified in the secretive alleged formulas used by the credit rating agencies is that frequent credit checks will lower your credit score. So even if the unemployed somehow manage not to fall behind on their bills, they're still screwed.

Say you're unemployed and you decide to work your tail off to land a new job, so you send out 40 résumés a week. Half of the companies might decide to do a credit-check before getting back to you. This sets off alarm-bells at the credit-rating agencies. Twenty credit-checks in one week? There goes your credit score. And there goes your hope of landing a new job.

This is what the use of credit scoring in employment decisions means: Looking for a job disqualifies you from being hired.

This is cruelly Kafkaesque. It's also bad for employers, arbitrarily reducing the size of their pool of qualified potential employees. And it's hindering economic recovery, prolonging the revenue-loss and the expense of unemployment, hobbling economic growth and therefore, yep, reducing the overall number of new employees being hired.

No comments: