New research finds no link between credit scores and job performance

by Josephson Institute on November 29, 2011

When evaluating job candidates, some employers use credit reports to help make a hiring decision. Usually, their thinking is that people with financial problems are more likely to steal, call in sick when they’re really not, or to engage in other criminal or unethical behavior at work. Credit reports show an individual’s history of late payments on accounts, defaulted loans, bankruptcies, degree of indebtedness, and other details of his or her personal financial life.

Some consumer and privacy advocates complain that accessing personal credit reports is in itself unethical behavior, since no evidence exists that good credit actually translates to good performance on the job. Especially in the current recession, credit scores have taken a beating due to widespread unemployment, foreclosures, and bankruptcies. A few states, including Washington, Maryland, and Illinois, have taken action, passing legislation to prohibit or severely limit credit checks by potential employers. California’s new rules go into effect in the new year, and more than 20 other states were considering such legislation this fall.

Now, new research backs up those states’ decisions:  A study from the Louisiana State University School of Business says that not only is there no connection between credit scores and job performance, but people with low scores are actually more likely to score high in desirable personality traits like “agreeableness.”

The research involved 142 individuals at several different places of employment. These individuals took a personality test, and requested their FICO score from credit reporting bureaus. The individuals’ supervisors provided information about the individuals’ job performance.

In accordance with conventional wisdom, individuals with high credit scores were more likely to rank high on the scale of “conscientiousness,” which is certainly a desirable trait in the workplace. But given that the high score is also correlated with less desirable personality traits, and most importantly, because it has no correlation with job performance nor with unethical behavior in the workplace, employers who are still legally permitted to perform credit checks may want to re-think the usefulness and fairness of doing so.

Image: Courtesy of Flickr user Andres Rueda

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