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Poor CIBIL Score Can Affect Your Employability

Viveka Rao
Written by Viveka Rao

Improve Your CIBIL Score Before Applying For Some Jobs

You’ve got an important interview scheduled later in the day, and you are pretty confident about cracking it. After all, the last time you checked, which was thirty minutes ago, your checklist had a tick mark against all important things: Mapped achievements and experience with the profile– done; Rehearsed the introduction – done; Perfected response to common interview questions – done,  Got your formal suit interview ready – done; Browsed through the company’s website – done.

But wait…. Isn’t your check list short of one thing? Where’s an entry for ‘credit report checked’?

A lot of companies today ask candidates to show their CIBIL reports and scores, and a below par score can result in losing out a great employment opportunity.

Indian Employers now Beginning to Follow Their International Counterparts

Internationally financial verification is an integral part of the employee verification process. Indian employers, however, have just now started doing what is a common practice everywhere: consider a candidate’s credit history and score while evaluating his or her candidacy.

As of now checking an interviewee’s credit track record is limited mostly to Finance and Software companies, and that too for senior level positions. Financial verification, however, is soon expected to become a norm, rather than a rule, for all job levels across all the industries.

Employers in India cannot directly pull up someone’s credit report, because of the RBI dictum that allows sharing of credit reports with only financial institutions and banks who are a member of CIBIL. That’s why employers ask interviewees to bring their report to their interview.

Note: Credit report is not the only parameter that employers check, nor is it the only basis for turning down an application. Credit report is a part of many factors, including, but not limited to, job qualification, salary expectations, and experience, taken into consideration by employers while hiring.

Why Employers Check an Interviewee’s CIBIL Report?

There are several valid reasons why an employer may want to check a candidate’s credit report (and, no, snooping around is not one of them).

  • A part of ‘background check’

Almost all companies run a background check on new employees, and it makes much sense to include financial information in it as well.

No company wants to hire someone irresponsible, and with poor credit record associated with financial indiscipline and irresponsible behavior, companies would prefer a way to screen such candidates.

Checking credit history, for sure, is not a fool-proof method to identity financially-undisciplined individuals, for a person may have poor record because of genuine reasons too. But then, which method is fool-proof? A poor credit repayment history, in most cases, can be accurately inferred as irresponsible behavior. In absence of a more accurate method, companies are happy to use, and rightly so, credit reports and scores for judging financial discipline and responsible behavior in general.

  • Poor credit history may indicate bad intentions

An individual with a ‘written off’ status in his or her report or a below-par score may be seen as someone who is not honest or someone who can be a threat to the work environment.

Each new employee for a company is an investment, and it will like to hire only those with an impeccable all-round record besides a relevant experience and expertise.

  • Financial woes may lead to a below-par performance

A lot of debt on head may make it difficult for an employee to give his or her hundred percent on the job front. This may or may not be true, but that’s not the point. The point is this is how employers in general see it.

Who Else May Use Credit History in Future? 

In developed countries, credit history is important reputational collateral and is used for many purposes by different institutions. Companies use it before hiring a candidate; telecom providers review it for assigning limits; and landlords demand it before renting out their property.

In India right now only some employers review credit record and score before hiring new candidates. In future, although not likely to happen any time soon, landlords may well start reviewing credit history before renting an apartment and telecom providers for assigning the usage limits.

How to Handle the Situation

Fixing credit is not something that can be done overnight. It takes time and planning in addition to money. If your credit score is poor and you are in search of a new job, the best thing to do is to:

  • Access the reasons of your poor score and take corrective measures immediately in case of incorrect entries. If your score is poor due to incorrect loan or payment entries, contact the relevant financial institution with relevant proof to get them corrected. Carry the necessary documents, including any correspondence with the relevant financial institution and/or CIBIL, to your interview
  • Share the facts honestly with prospective employers. A concocted story is extremely less likely to be of much help if your score is bad due to poor financial judgment or discipline. On the other hand, you may win an employer’s respect if you own up to your mistakes and speak the truth for what it is.
  • Demonstrate you’ve learned from your mistakes and are committed show a better repayment behavior in future. This is extremely important. A poor record may not hurt you as much if you can show prospective employers that you’ve understood the need of financial discipline and, more importantly, have start taking corrective measures.

5 Factors that Affect the Credit Score Most

There is only one long-term solution to the problem of poor credit history—fix it. The following 5 factors affect your credit score most; see which ones are hurting your credit record most badly and then take steps to address them.

  • Repayment History (35%)

Nothing affects your credit score more than your repayment history, which accounts for no less than thirty-five percent of a credit score. For maintaining an impeccable repayment record, clear all loans and bills on time. Your credit score can fall substantially because of a single late payment.

  • What You Owe (30%)

What you owe to your lenders, also called credit utilization, is calculated taking two things into account: the total credit you can use and the total credit taken at present.  Credit utilization is referred as the percentage of your total credit limit that you are using (formula: (total credit taken/total credit allowed)*100).

Here’s an example: You’ve three credit cards with credit limit of Rs 100,000, Rs 75,000, and Rs 50,000 and an outstanding balance of Rs 30,000, Rs 13,000, and Rs 7,000, respectively. That is, your total credit limit is Rs 200,000 and total outstanding balance is Rs 50,000. Your credit utilization is 25%.

Credit utilization between 30% – 40% is considered good while a higher credit utilization percentage is not seen favorably.

  • Your Credit History Duration (10%)

The longer you’ve been servicing debt and handling it responsibly, the better the impact is on your credit report.

This may appear surprising, but the time period for which an individual has been using credit is a factor used for calculating his or her CIBIL score. If you don’t use a credit card, it is time you start using one—but use it responsibly; otherwise the exercise will backfire—to build a healthy credit history.

  • Number of Credit Taken or Applied (10%)

Whenever you apply for a credit, the concerned financial institution raises an inquiry to access and study your credit report. Too many such inquiries in too short a time negatively affect your credit score.

  • Credit Mix (10%)

Someone with a healthy mix of secured and unsecured loans will have a better credit score, if other things are the same, than someone with only an unsecured loan. Please note that having only secured loans is not reported negatively on your credit record, but having only unsecured loans is. If a large part of your total loan is unsecured loan, that too has a negative impact.

Now that you know the factors that affect your credit score and how they affect it, use this information to improve your credit report and your employability.

About the author

Viveka Rao

Viveka Rao

Viveka Rao is post grad in finance and a freelance writer here at CreditSmart. A love for shopping and travel rewards has fueled her interest in personal credit, and making the most of rewards programs. She writes to educate other consumers in making great financial choices.

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