Plastic Handcuffs IV

A low credit score can mean many things.

It may mean that you are an unreliable and irresponsible person and therefore the unelected-yet-very-powerful credit reporting agencies have determined that you are not to be trusted with loans of large sums of money.

It's far more likely, though, that it means you simply don't have large sums of money at your disposal, and therefore the almighty CRAs are simply noting that you would not have the means to repay such loans.

The former is a matter of character. The latter is a matter of circumstance. Credit scores are not designed to distinguish between the two, yet increasingly they are being used as though they were solely a measure of character.

Credit scores aren't just for lenders anymore. Now employers are using these scores to screen potential employees. This is only slightly less arbitrary and foolish than if they were using phrenology or astrology.

One factor that can drastically lower a person's credit score is if they are unemployed. This means that the mere fact that you need a job is now considered, by some companies, to be a reason not to give you one. Didn't poor people face enough Catch-22s already without these idiots having to invent a new one?

I've written about this before (see "Plastic Handcuffs"), objecting to the way this economic measure is being used to make moral judgments. The implicit idea is that wealth and the wealthy are inherently virtuous while the poor are morally suspect. The next leap of illogic is that the poor therefore probably deserve their lot and that it would be somehow unjust to give the filthy Dalits the opportunity to work their way out of poverty.

I'm revisiting the topic because of Stacy A. Teicher's article "Judged by the content of your credit report" in The Christian Science Monitor. Teicher agrees that this credit creep is disturbing, and she finds both academic and professional experts who point out that it serves no legitimate purpose.

Dr. Jerry Palmer, a "professor of industrial and organizational psychology at Eastern Kentucky University in Richmond," studied a group of workers to see if there was any correlation between their reliability and performance on the job and their credit scores. There wasn't.

"As a measure of conscientiousness or attention to detail," Dr. Palmer says, "it's not very good."

Teicher also introduces us to Paul Barada, who checks references and screens potential employees for a living:

Credit reports can help employers verify people's identity, and in some cases they can be useful as part of an overall profile, but many companies use them as a substitute for real hiring diligence, says Paul Barada, president of Barada Associates, a reference-checking firm in Rushville, Ind.

Especially in the security-conscious atmosphere since 9/11, many employers have started using credit reports — but not much else — to screen new hires. "It's horribly misguided," Mr. Barada says. "It's the penny-wise, pound-foolish way to claim you've done something."

These companies may even leave themselves open to claims of discrimination, because the use of credit reports in some other contexts has been shown to put minorities at a disadvantage.

That last point — "the use of credit reports … has been shown to put minorities at a disadvantage" — seems to invite a class-action lawsuit from the Rainbow/PUSH Coalition.

Part of what's going on here seems to be what Alfred North Whitehead called the "fallacy of misplaced concreteness." Your credit score is just that — a score, a number, a measurable quantity. If you present people with a precise enough figure, based on complicated and precise calculations, they think that you're offering something with the kind of mathematical, empirical-law-of-nature authority that physicists used to claim. It doesn't matter if the formula consists of a hodge-podge of subjective multipliers and that the entire enterprise is premised on the nearly arbitrary attempt to assert that certain qualities are worth, oh, let's see, we'll give this five points … no, ten. To a certain kind of person — the kind of person who is intimidated by the authority of math and science, but doesn't really understand them — the quantitative data provided by a credit score seems rock solid.

Then there's that word: score. That also seems to drive the increasing use of credit ratings in places where they have no business being used. We like to keep score — to see who is winning and who is losing. I doubt it's possible to underestimate the seductive way in which the use of such scores to winnow out prospective employees serves to reassure the people doing so that they are winners.

"I have seen something else under the sun," the Teacher says in Ecclesiastes 9:11:

… The race is not to the swift

or the battle to the strong,

nor does food come to the wise

or wealth to the brilliant

or favor to the learned;

but time and chance happen to them all.

John Rawls took this basic truth and crafted an entire theory of justice out of it. Those who think that a person's bank balance is a sufficient measure of their character would do well to remember it.

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  • Kevin Hayden

    That was brilliant, Fred. Illuminating, exacting, and beautifully put.

  • Grant

    I agree. Excellent post.
    I just have one question: How could someone prove that they were discriminated against based on their credit report?

  • Michael Bowen

    Credit scores aren’t just for lenders anymore. Now employers are using these scores to screen potential employees.
    This is legal? They can really do this? Holy crap!

  • Leah A

    Excellent and important post.
    That horror of a bill giving the credit card companies their every Christmas wish, and making it harder, if not impossible for defaulters to declare bankruptcy is still around and waiting to be sprung by Republicans.
    Remember also, that those same credit card companies who will reduce your credit rating for being unemployed constantly send out offers encouraging people to apply for a card, often stating that they are pre-approved to “apply,” without letting them know that if they don’t qualify, that will be reported to a CRA as a debit to their credit rating. So, if the unemployed person finds a job and wants another credit card, it will come at a higher interest rate than otherwise.

  • cheney_usa

    I happened to check out Slashdot right after skimming this article, and low and behold they have a post about Choicepoint releasing a toolkit for doing background, credit, what ever checks.
    Also, there is a new company called ID Analytics that made a small splash are RSA Conference for their system of checking people for credit card fraud. They are vague about what data they use other than pattern, anomaly detection.

  • Credit Scores

    Amidst all the other things competing for my time this weekend, I did manage to read this excellent article by the Slacktivist about Satan’s preferred business model: the Credit Scoring Industry. It is definitely a must read.

  • SKBubba

    The idea of credit checks for employment has a basis in practicality. For example, banks might perform a credit check to make sure that someone responsible for handling large amounts of cash or approving loans doesn’t have finanical problems that might tempt them to embezzle funds or rig loans for kickbacks. Or they might want to check law enforcement candidates due to concerns about them being targets for extortion or corruption because of financial problems.
    But like everything else, these somewhat reasonable precautions are being perverted by paternalistic corporations who want to intrude into their employees’ private affairs and control every aspect of their lives. Pretty disturbing.

  • Brad

    Also worth noting is that your auto insurance premiums are often influenced by your credit rating. That there is no causal relation between the two seems not to be of any importance to the insurance companies – if it correlates to risk, in the aggregate across their customer base, as well as driving records and is cheaper to check, that’s fine with them. Being “fair” to a good driver with bad credit matters not a whit. It’s another way you get screwed hard if you don’t have stellar credit.

  • Ab_Normal

    My mom’s auto insurance rates increased last year; she had me look at the accompanying paperwork, and as far as I could tell, they were increased because of her credit rating, which was negatively affected by the fact that she doesn’t carry a balance on her credit cards. Yep, she got a bad rating because she’s careful with her money. Bastiches.

  • A Texan in Maryland

    Ab Normal: I knew that not carrying balances on your credit cards would slow the rate at which your credit score increased and make it less likely that a CC company would want to raise your limits, but it can *lower* your credit score? That’s horrible.

  • none

    Reading the positive and negative factors on a credit report is a mind-boggling exercise in doublespeak and dumb-ass logic. This is my current favorite: “You opened your first credit account 12 years ago. This is making your score lower. Having had credit accounts for a long time is a positive factor because your history gives lenders information yadda yadda yadda…credit reports with approximately 30 years of history are considered optimal…”
    Um, at the time, I was 29. Good to know that these detailed personalized scores, based on my personal history, do not take my age into account when affecting my future.

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