Judged by the content of your credit report

Imagine sitting across a table from people who want to make a quick judgment about your character. You're speed-dating, or applying for a job, or even meeting "the parents."

Then they pull out a thin file containing your entire ... credit history.

Face it. Credit reports these days are used for a lot more than loan applications. Many employers order one up when screening potential hires. Relationship experts tout it as a good tool for choosing a compatible partner or creating "financial intimacy."

The rationale is clear: If your bills are paid on time, you're responsible. If not, employers reason, you might be less trustworthy with money.

The problem, experts say, is that many factors that can affect a credit report have nothing to with an individual's character. "It's going to reflect things like divorce, sickness, loss of one's job, possibly even identity theft ... so as a measure of conscientiousness or attention to detail, it's not very good," says Jerry Palmer, a professor of industrial and organizational psychology at Eastern Kentucky University in Richmond.

Dr. Palmer should know. Recent research he conducted with colleague Laura Koppes tested whether there is any correlation between employees' credit reports and job performance. Though the study was limited to one industry - financial services - the answer they got was a resounding "no."

In fact, two people in the study with the highest number of 30-day late notices on their credit reports were evaluated as "meets expectations" and "outstanding" in performance reviews. Palmer was surprised by the findings, but then a possible explanation occurred to him: "If a person is not conscientious on the job, the potential consequences are immediate.... But if one is late with one's bills, the consequences aren't quite as apparent, and it would be easy for [busy] people to just put it out of their mind."

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. After seeing the results of Palmer's study, the bank that asked him to conduct it decided against using credit reports for hiring.

Page: 1 | 2