Limit, Don’t Ban, Use of Credit Reports in Hiring

by Matthew Glans on March 24, 2011

The use of credit scores as part of the job application process has been a controversial issue, with some states banning the process altogether. As is true with many laws, simply banning the practice overlooks sensible alternatives that could allow employers to gather this information while not using it as the sole criteria for employment.

In a letter printed March 23 in the Baltimore Sun, I recommend a new approach that emulates how credit scores are used in insurance, with credit scores being allowed as a determining factor, but also requiring full disclosure and not allowing the scores to be the only factor considered. These laws also require insurers to consider special economic circumstances.

The letter, “Limit, Don’t Ban, Use of Credit Reports in Hiring,” was originally published March 23 in the Baltimore Sun and is reprinted below.

Limit, Don’t Ban, Use of Credit Reports in Hiring
By Matthew Glans
March 23, 2011

Although proponents of the new Maryland law that would ban employers from using credit scores to determine employment eligibility make some important points, the ban goes too far (“Md. lawmakers want to limit credit checks on job seekers,” March 20). Banning altogether the use of credit scores in the hiring process takes out of the hands of employers something that can be an insightful tool. Credit scores, after all, contain useful information that can be relevant to performance on some jobs.

Rather than calling for a ban, policymakers might want to look to laws that govern insurance companies’ use of credit scores. In most states, including Maryland, insurers can use credit scores in determining rates, but they must disclose their actions and can’t use credit as the sole factor in deciding whether to write a policy. Insurers also have to give consideration to unusual economic circumstances.

For the most part, this system works pretty well. Legislators looking to change the way employers use credit scores should consider imitating it.

Matthew Glans, Chicago
The writer is Midwest director of the Center on Finance, Insurance, and Real Estate at the Heartland Institute.

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