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NIU researcher: Credit scores not perfect means of measuring trustworthiness of job applicants

November 1, 2011
Shannon Taylor

Shannon Taylor

Companies are increasingly turning to credit scores as a way of flagging potentially troublesome employees, but there is little data to support that the practice works, says Northern Illinois University researcher Shannon Taylor.

“People are basing these hiring decisions on their gut instinct as to what these scores mean. There is no statistical data measuring the validity of that metric,” says Taylor, who teaches in the Management Department of the NIU College of Business.

Taylor worked with Jeremy Bernerth and Daniel Whitman, both of Louisiana State University, and H. Jack Walker, of Texas Tech University, to conduct some of the first empirical research on the matter.

According to a 2010 study by the Society for Human Resource Management, 60 percent of companies today use credit reports to help them make some or all of their hiring decisions. Use of the reports is particularly prevalent in the hiring of senior executives, workers with financial responsibilities or access to cash, and workers who have access to confidential information about other employees.

“The assumption is that if you are conscientious about your personal credit you can be trusted in such jobs, whereas those with a poor credit score would be less trustworthy,” Taylor says.

To test those assumptions, the research team created a study that recruited volunteers who were willing to grant access to their credit reports and allow their supervisors to fill out a performance review. The researchers also interviewed the subjects and had them take a personality profile test.

After analyzing the data, the research team discovered that the assumptions employers made based upon credit reports proved to be only partially true.

“We found that credit reports were an excellent predictor of task performance: those with good credit reports received good reviews from their bosses,” Taylor says. “That finding made sense to us. Credit reports track financial responsibility over time – paying off debt, making timely payments. Those who were reliable about that in their personal lives were viewed as similarly conscientious when it came to performing their jobs.”

Close-up photo of credit cardHowever, the data did not support the assumption that individuals with poor credit reports were more likely to be untrustworthy.

“We did not find any relationship between poor credit scores and employee deviance,” Taylor says. “Those individuals got less positive reviews from their supervisors, but they were no more likely to steal, have poor relationships with co-workers or to intentionally show low effort.”

That is somewhat troubling, because the SHRM survey found that for more than half (54 percent) of employers who used credit reports, the primary reason for doing so was to prevent or reduce theft, embezzlement and other criminal activity.

Shannon and the rest of the research team are not advocating for companies to adopt or abandon the use of credit reports in hiring decisions. “This is the first study of its kind that we know of,” Taylor says, “so there needs to be much more research before we can be confident in the full scope of its implications.”