The credit score is based on your previous loans, debts, as well as the repayment history. But it doesn’t reveal whether you are employed or not. So, your credit score is not affected if you lose your job unless you fail to pay your entire dues or loans in time. The impact will be indirect.
The loss of your job can have an adverse effect on your credit rating in indirect ways by the following methods.
#1 You May Fall Short on Your Credit Card Bills or Loan EMIs
If you’ve been laid off from work, you can’t be sure that you will make payments on your credit card charges as well as loan installments in time. This is due to an abrupt drop in income. However, any fees that are due after 30 days will be filed with the credit bureau. The history of your payments makes up approximately 35 percent of your credit score, and delays can enormously affect your credit score. The lender can ask you to hold off on your expenses until your income is regular. This can reduce the negative effect of your credit rating.
#2 You May Take Out New Loans or Use Up More of Your Credit Limit
If you don’t have a reliable means of earning money, you’ll end up borrowing money or using up your credit limit in order to pay existing EMIs as well as credit card debt. This can increase your credit utilization ratio as well as the amount of debt you have. This can affect your credit score as well. Your debt levels account for 30 percent of the credit rating. Additionally, if debt levels are very high, they will place more pressure on your monthly spending because you will have to pay back the dues.
#3 You End Up Opening Multiple New Accounts To Get Money To Pay Your Bills
The credit age is approximately 15% of your credit score. New accounts can lower your credit score, as the credit age is calculated by calculating the average age of all charges.
How To Improve Your Credit Score After Losing Your Job?
It’s not difficult to boost your score on credit. It would be best if you learned positive financial habits to increase your credit rating.
- Making payments promptly: Timely repayment of bills can help increase the score of your credit. In this way, you will improve your credit rating over a long period.
- Reduce your CUR: You can lower your debt and your CUR to boost your credit rating. If you have savings, you could utilize them to help close smaller loans in advance and save some interest, too.
- Requests for a limit on credit extensions: Each time a request for a new credit line is submitted, a thorough inquiry will be made through your credit file. This can lower your credit score. Therefore, you should not make any applications for credit in the event that you’ve had to quit your work. You will also be unable to pay your debts if they pile up.
- Examine your credit score for irregularities: You should get into the routine of reviewing your credit report at least every six months or more often. Sometimes, transactions could be incorrectly entered into your credit report. It could also be that your information is outdated or has not been updated on a timely basis to indicate that you’ve paid back a loan or you’ve closed on a home. If you review the credit reports, you are able to immediately correct the errors by contacting any of the bureaus that handle credit.
- Clear Outstanding PaymentsIf you are a victim of outstanding or late payments on your credit record, It is crucial to get them cleared promptly. Information on late fees, as well as how long they lasted, remain on your credit file. As time passes, your credit score is likely to be severely affected.
How Does Your Credit Score Affect Your Job Search?
Having a good credit score is essential for any job application. Although some industries might not see your credit score to be crucial, certain sectors, such as finance, banking, etc., might require you to have high credit scores.
Some Industries Which Give Importance To Credit Score
- Banking and Finance Sector
An excellent rating on your credit can be a huge advantage for your job in the finance and banking sectors. The customers in this industry must pay their bills on time. Therefore, employers prefer to hire those with high credit scores as they expect their employees to have similar financial responsibilities.
- Jobs that require Financial Responsibility
jobs that have a high degree of financial responsibility need a strong credit score even though they may have no connection to the finance industry. Employers do not like hiring people with low credit scores to fill positions such as accounts, cashiers, and credit collection.
- Debts Exceed Salary
If the amount of debt you have is greater than your income and your salary, the employer might consider you to be a good fit for the job. This is because a greater debt amount will force you to make more than what the job can provide.