Tuesday, May 6, 2008

Character and your Credit Score

In my post on Tuesday, I made the following statement, "...(Many companies are beginning to use Credit Reports on applicants as an evaluation tool.)" I want to go into more detail on this comment and what some companies may believe your credit history says about you.

First, let me explain a basic fundamental taught at colleges across the U.S. This fundamental is that there are 5 C's to your credit worthiness as a borrower. They are Capacity (ability to repay loan), Capital (money you have personally invested in the business, home, etc.), Collateral (pledging an asset you own - mortgages are in most cases based on the home), Conditions (what is the money being used for...), and Character (general impression you make on the lender, experiences, past history etc.).

Banks and other Lending Institutions use your credit score/history, which displays the above 5 C's, to evaluate your "worthiness" as a borrower to receive a loan against your new home or business. Your credit score takes into account your past history on "credit" you have been granted through these various channels. So at some point, your character/responsibility level to repay these debts comes into question. Now employers are beginning to use, with permission from the job applicant, a credit report to further examine the applicant.

I read a past bloggers take (See Tech Republic) on Companies using credit scores/history as an evaluation tool. I then read the article by Diane Lewis, "Qualification: Must have a good credit history." and researched a few more websites including this report in early April by Channel 7 ABC in Los Angeles (ABC 7 Report). Note the retraction regarding the credit score vs. credit history. The companies don't care about your score but they do about your history because many times history is an indicator for the future.
Since researching I am sure: 1) That if the credit history gives a clearer picture of a person's background than a reference or resume it should be used and 2) That I am not clear as to what the public believes regarding this issue.

What do you think? Do you believe that a person's credit history should determine whether they are hired by a company or not? Does credit history really speak to a person's character?

I read many of the comments from the Tech Republic blog site and most of them discussed extenuating circumstances that led to difficulty in past credit history. However, I do believe that how one handles those circumstances does speak to their character/financial responsibility/integrity. And if there were extenuating circumstances surrounding a person's history and they believe it may cause an issue with a potential company, should they not explain the situation and speak to how they are repairing/dealing with the past situation?

I am very interested to hear what you think. Please don't hesitate to comment on this article.

1 comment:

Anonymous said...

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