"No More Credit Score": Emplyer Credit Check Bans and Signal Substitution

Robert Clifford and Daniel Shoag
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Robert Clifford: Federal Reserve Bank of Boston
Daniel Shoag: Harvard University

Working Paper Series from Harvard University, John F. Kennedy School of Government

Abstract: In the past decade, most states have banned or have considered banning the use of credit checks in hiring decisions, a screening tool that is widely used by employers. Using new Equifax data on employer credit checks, the Federal Reserve Bank of New York Consumer Credit Panel/Equifax, and the LEHD Origin-Destination Employment data, we show that these bans increased employment of residents in the lowest credit score areas. The largest gains occurred in higher- paying jobs and in the government-sector. At the same time, using a large database of job postings, we show that employers increased their demands for other signals of applicants' job performance, like education and experience. On net, the changes induced by these bans generate relatively worse outcomes for those with mid-to-low credit scores, for those under 22 years old, and for Blacks, group commonly thought to benefit from such legislation.

Date: 2016-02
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:ecl:harjfk:16-008

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