CHECK YOUR CREDIT

 

Although credits scores have only been in existence for a few decades, they have become a critical factor in most people’s lives.  Credit Scores were initially created to serve as a predictive indicator of one’s creditworthiness.  Basically, the higher the credit score meant the greater probability that a person would repay their credit obligation.

The credit score itself is determined using several variables (each may be weighted slightly differently) – none of which are clearly defined by the credit bureau agency in an effort to prevent the manipulation of the scores.  Initially, no one understood the scores and many did not fully trust the scores.    Today, more people understand the scores but many still do not fully trust the scores.

So…….how does the new world of credit scores directly impact the average person?  They now are nothing more than a number.  Prior to the creation of credit scores, an individual’s creditworthiness was based on a number of factors (such as credit history, capacity to repay, collateral, etc) versus simply fitting into a predetermined box.

Personally, I believe that credit scores are a valuable tool.  Unfortunately, as what typically happens with many valuable tools, credit, cores have been propelled in some cases to the absolute decision.  To add insult to injury; credit scores are now leveraged for many more decisions than simply that of extending credit.  Credit Scores are used in virtually every background check.

I have a friend who was struggling to find a good candidate for a key position in his organization.  He was thrilled because after several months of interviewing, he finally found the ideal candidate.  Ironically, the candidate was probably his biggest competitor just a few years earlier.  He had the perfect skill set, professional contacts, industry reputation and a proven track record.  He was the ideal candidate.

But, then came the company background check which included a credit score.  The industry in which this individual worked was heavily impacted with the economic down turn.  He (like many people) fell victim to a company closure.  As a result he was unemployed for several months.  He did the best that, he possibly could but he unfortunately had more obligations than he had income.  Therefore, he fell behind on many of his credit obligations – which resulted in a significant drop in his credit score.

The company had a minimum credit score threshold, which this candidate unfortunately fell below.  Company policy did not have any flexibility to make an exception.  Therefore after several exhausting months searching for the perfect candidate to grow the business and bring value to the corporation, my friend/hiring manager finally found the perfect candidate who he could not hire.

The credit score paradox of the situation is that this gentleman’s score dropped due to his inability to pay his obligation due to his loss of income.  However, he is now unable to obtain the income to pay is obligation due to the drop in his score.  What a vicious circle.

I can only imagine the frustration of the hiring manager and the heartbreak for the candidate.  Maybe the credit score should have been considered in the hiring decision, but whatever happened to making a well rounded decision based on the reputation, character, track record and references of an individual?  If given the opportunity and/or authority, I would strongly recommend never basing a decision on one absolute factor.  In this particular case, it was doubling painful for my friend.  Not only did he lose a top ranked candidate, but the candidate did find employment and is once again one of his biggest competitors.