Losing your employment can be a traumatizing experience. This can impact all aspects of your life extremely, particularly if you are the breadwinner of the family. Any unanticipated layoff can result in chaos in your professional and personal life, propelling you to reset your future endeavours and priorities. You may also require re-evaluating your spending habits as well as adjusting your lifestyle till you acquire financial independence and your job again.
While it is natural for you to concentrate almost exclusively on getting a new job, there’s an often-avoided impact of losing out on a job that you must consider even. Not many individuals know that losing a job clubbed with long-term unemployment periods may create a detrimental impact on your credit score. Just for clarification, your credit score factors in your previous loans and debts and your repayment history. However, it does not show if you are unemployed or employed. Thus, your score is not affected by employment loss until you pay all your loans and debts on time.
Credit scores get compiled by all the 4 major credit score bureaus in India – CIBIL, Equifax, Experian and CRIF Highmark. When forming your credit report, such agencies involve your loan as well as your credit card info for the last 7 years. While your report does not contain any kind of record linked with your employment status, your personal income, or work history, the actuality is losing an employee can enhance your chances to default on EMIs, which further lowers your credit score.
How does credit score impact your employment search?
Your credit score can even affect your employment search, so it is necessary that you maintain a strong credit score to gain employment. The importance that an employer endows on your score depends on your organization type and industry.
Specific organizations might not also authenticate your credit score as it will not impact the outcome of your employment decision. However, few sectors, such as finance and banking, consider a strong credit score to be crucial while reviewing your profile. They ensure to conduct an in-depth credit history check to know your past record. Reviewing your score before employing you is one of the important conditions of credit policy of banks and other financial institutions.
Here’s a breakdown of a few of the crucial industries that may consider your credit score before employing you –
Banking and finance sector –
A credit score is an important criterion for organizations in the finance and banking category. Customers in such industries are expected to repay on time, and they must have a strong credit score. Hence, employers too prefer to hire those who value and abide by the same ethics. Owing to this factor, holding a low credit score can impact your employment scope in this industry.
Financial and job responsibilities –
How well one manages their personal finance is a crucial benchmark that employers consider when hiring for a position that requires meeting financial responsibilities. Candidates having poor credit often are hired for the accounting position, cashier, credit collection etc., even in those sectors not linked with banking or finance.
Debts exceed income –
In case an employer views that you have substantial debt that surpasses your salary, then they may hesitate to select you. This is because it shows your credit-hungry nature for credit.
Does your annual income impact your credit score?
Your credit score is one of the crucial parameters that decide whether you would avail of a loan. However, does it get impacted by your income? 4 important credit scoring bureaus do not list one’s salary or income anywhere on the report and decide your score depending upon specific parameters like your behaviour with credit, number of debts, outstanding debts, credit mix, credit utilization ratio etc. It does not factor in your income to decide your credit score. However, your credit score may be impacted by your income. Suppose you availed a credit card and swiped the entire credit card limit, which was over your income, i.e., your repayment capacity. As your income is low then you’re spending, you may not be able to repay your outstanding credit card debt, and as an outcome, your credit score will be impacted. Though your income does not determine your score, it is indirectly related. However, for loan approvals, lenders factor in your annual income to understand your repayment capacity.
Loan approvals are dependent upon various parameters, including your monthly earnings, credit score and many other parameters. Financial institutions and banks factor in your DTI or debt to income ratio, your credit history, your loan, repayment patterns, debt situation and other recently applied credit options when assessing your credibility.
Can the job be denied to you due to a low credit score?
Most job seekers are turned down for jobs owing to a lack of experience and confidence. In a few cases, their personal finances may also play a major role. For various job profiles, particularly for high-level positions, employers may prefer to conduct a thorough check of your credit history. Credit checks by the employer have a substantial impact on you, and as per the report, around one in 10 applicants are usually denied a job owing to their heavy credit card debt.
An employer can use details or data from any of the 4 credit bureaus, namely CIBIL, Equifax, CRIF Highmark and Experian, to check the prospective employee’s credit profile. Also, they might select to go for a 3rd party to conduct the credit check. The next report found that out of the employers who conducted background checks on the candidates, around 31 per cent included credit info and other financial info in their findings.
Thus, ensure to maintain a good credit score not just to be able to avail of a loan or credit card in future but be eligible to get a future in the financial sector. You can build a good score by timely repaying your debts, maintaining a balanced mix of assets, keeping your credit utilization ratio within 30 per cent etc.
