"No More Credit Score" Employer Credit Check Banks and Signal Substitution


Shoag D, Ballance J, Clifford R. "No More Credit Score" Employer Credit Check Banks and Signal Substitution. Forthcoming at Labour Economics. Working Paper.


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 higherpaying 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, groups commonly thought to benefit from such legislation.

Last updated on 01/28/2020