Bad scores

In Chapter 2 of Numbers Rule Your World, I explained why most of the accusations hurled at credit scoring miss the mark. For most consumers, especially those behaving honorably, credit scoring offers many benefits.

However, success breeds over-reach, and when credit scoring companies try to sell their wares as indicators of good/bad employees, they surely are selling snake oil. This reminds me of the effort by pharmaceutical companies to find other uses of drugs that have been granted patents for one use.

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Andrew Martin of the New York Times wrote about the use of credit scoring by companies to screen employees. Eric Rosenberg of TransUnion, one of the big three credit reporting services, admitted that there is no research that exists to show any correlation between high credit scores and likelihood to be "good" employees. In the meantime, his employer continues to sell to employers, and is fighting legislative challenges to using scores in this way.

Employers say they use credit scores hoping to prevent "theft and embezzlement". Credit scores predict the probability of someone to fail to repay a loan in the not-too-distant future. How is that related to stealing I cannot fathom.

A couple of additional points (not covered by Martin) to ponder:

• The biggest fallacy of this use of credit scores is the underlying model that says an employee's behavior at home is the same as his or her behavior at work. This is patently untrue.
• The second fallacy is the mistaken interpretation of a correlational model as a causal model. Credit scoring models do not make the distinction between someone failing to repay a loan because of questionable personal behavior or falling on hard times. They just tell us that this someone is likely to miss payment. When employees use these scores, they over-interpret the model when they assume missed payment is always due to personal misbehavior.

 

Reference: "As a Hiring Filter, Credit Checks Draw Questions", Andrew Martin, New York Times, April 10 2010.

Comments

[Morgan]

"Credit scores predict the probability of someone to fail to repay a loan in the not-too-distant future. How is that related to stealing I cannot fathom."

You're kidding, right? They're related through an implicit construct called "honesty".

Whether there really is such a single construct that applies both at home and at work, (if so) whether honesty reliably predicts both credit scores and stealing, and (if so) whether a credit score is a sufficiently good indicator of honesty and honesty of stealing that using a credit score to predict stealing is worthwhile... those are different questions.

But I think it's clear how the two are supposed to be related.

[Kaiser]

Morgan: see the last paragraph of the post.