Traditionally, jobs offer people stable security against daily expenses and other necessities. Naturally, losing a job can negatively affect your life. Unexpected events like these can cause turmoil in your life and force you to rethink your financial priorities and future plans until you gain employment again.
However, it’s also important to keep in mind that being unemployed can terminally affect your credit score if you don’t make timely repayments. A credit score is a three-digit figure that tracks your credit and repayment history. Thus, repaying your loans and debts within the given time frame can help you dodge credit score loss even if you lose your job abruptly.
In this blog, we’ll dive deep into the relationship between jobs and credit score and how losing a job can hurt your credit score.
What’s your credit score, and how is it interlinked with your monthly income?
If you want to apply for a loan in India, your credit score is an important prerequisite. A credit score is tracked by four major agencies in India – CIBIL, Experian PLC, and Equifax Inc.
Typically, these banking institutions check your debt-to-income ratio, monthly income, past loans, and several other factors before sanctioning loans. Your credit card report will not mention your salary anywhere on the report. However, your monthly earnings and other factors are internally highlighted in multiple places.
Every person also has unique repayment patterns and debt situations that are tracked to measure their repayment capacity. Now, there is a high possibility that your application will be rejected if you have a poor history, too much debt, or low earnings.
Let’s understand the difference between a good and a bad credit score and how you can keep your score stable despite unemployment.
What is the difference between a good and a bad credit score?
Banks and various institutions use credit scores to determine your creditworthiness. They’re also known as risk scores as it enables lending institutions to understand if you can repay the loan.
Typically, credit scores vary anywhere between 300 and 850 based on the credit report curated by CIBIL. A credit score of more than 700 is considered good and indicates that the borrower can repay his liabilities on time.
A score between 600-700 is considered average, whereas a score less than 600 is considered poor. Your loan application will likely be rejected if your score is below 600. So, let’s discuss some tips below on how to improve CIBIL scores even while you’re unemployed.
How to improve CIBIL score while you’re unemployed?
A good credit score is a reflection of sound money management. Improving your CIBIL score requires patience and discipline. Let’s discuss some practices that you can incorporate to maintain a healthy credit score:
- Repaying credit bills timely
Repaying credit times remains one of the most pragmatic approaches for increasing your CIBIL score. Several lending institutions check credit utilization; therefore, repaying loan bills over a period of time can increase your CIBIL score significantly.
- Do not accept any credit
Companies and banking institutions can easily track new requests for loans. You may be tempted to draw a few loans to meet your requirements when unemployed. But remember, if you default on repayments, your credit score will be hampered.
Avoiding new credit lines is the best way to go when you do not have a stable income.
- Rechecking CIBIL score for inaccuracies
There is always a possibility that your credit report has discrepancies. Errors and system glitches can damage your credit score. It is thus paramount that you check your credit reports thoroughly for all details and track them each month to maintain a healthy credit score.
- Reduce outstanding credit payments
Having bad financial patterns can adversely affect your credit score.
Remember that any kind of liabilities, such as credit card bills or short-term loans, can directly impact your credit score. Also, credit agencies keep track of late payments.
And therefore, you need to repay such loans in a timely manner to avoid low credit scores.
Your credit score is a reflection of your creditworthiness. If you experience a job loss, you may likely default on payments. This can, in turn, affect your credit score. But, the good news is that you can still maintain your credit score by following the above-mentioned pointers. In addition, you might miss out on good job offers because of your bad credit history.
Losing a job can be unsettling, but try to manage your credit bills on time for a healthy credit score!