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How Does Losing A Job Impact Your Credit Score

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Fincrif India

Oct 19

04:19 AM

Even if losing your job could seem like the end of the world, the article must have made it evident that, with the right debt and money management, you can bounce back from the circumstance.

The effects of losing a job matter even though it has no direct impact on your credit score. Your credit score could suffer as a result of the possibility that you don't have a job, which raises questions about your ability to pay back debt.


The numerous aspects that could lower your credit score after losing a job will be covered in the sections below, along with possible solutions.

Impact of losing a job on credit score 

Here are several ways that losing a job can impede your ability to obtain credit.

It's possible to overuse credit cards or take out numerous loans

Everyone needs to make ends meet and take care of themselves and their family, even if they don't have a paycheck. The only choice, though, would be to use credit cards because of the small amount of money. By exceeding or approaching your credit limit, you show that your finances are unstable, which might increase your debt and lower your credit score.


To meet their financial obligations, some people choose to take out many loans concurrently. As a result, their ability to repay the EMIs would be more challenging, ultimately putting pressure on their credit score. This would increase their debt-to-income ratio.

Failure to repay a loan is possible for you

If you don't have enough funds, you can find yourself jobless and without any means of assistance, which might force you to forgo repayments. Your image as a borrower and your credit score might be badly impacted by missing payments on a loan. A default is one of the main reasons why a loan application is turned down, and it is reported to the credit bureaus for a considerable amount of time.


In order to relieve themselves of their current debt, borrowers frequently take on additional debt. This might lead them to fall into a debt trap and damage their credit score.

Your Credit Age Might Be Reduced

Long credit histories of on-time repayments, which demonstrate creditworthiness, are preferred by lenders. A credit score is 15% influenced by credit age. The average account age is considered in order to determine this. Your credit score will therefore be greater the older your average credit age is. 


However, if you are having trouble paying your debts, you might create new credit accounts. As a result, your average credit age will suddenly decline, hurting both your reputation and credit score.

How can a low credit score affect your job search ?

If you've read this far, you probably have a pretty good understanding of how leaving your job might affect your credit score in a negative way. To get a steady income and pay off your debt, you can try to get a new job right away, but that is not as easy as it sounds. A candidate for a job is less likely to be hired because of their difficulty managing their finances, which is shown by a declining credit score.


Learn why employers don't like applicants with poor credit ratings in the following paragraphs.

Inadequate financial management abilities

It's been popular lately to check applicants' credit reports. 60% of companies check the credit score of prospective employees, according to research by SHRM (Society for Human Resource Management). They can use this to assess if an employee used funds in a responsible manner. 


People with bad credit frequently search for higher paying employment in order to pay off their substantial debts rather than concentrating on establishing a stable career. Because of this, it is challenging for businesses to keep them. A person's stress level may also increase as a result of having a low credit score, which may eventually impair how well he performs at work.

Possibility of fraud

Multiple credit accounts could cause recruiters to become suspicious. When an applicant may be engaged in illegal activities that could damage their reputation or cause them financial harm, employers have the right to refuse their application.

How to recover from a poor credit score after a job loss ? 

A low credit score and losing your job are both stressful situations. Despite losing your work, it is still possible to raise your credit score. It will take some time for it to show up on your credit report, though, and it won't get better right away. Thus, to gradually raise your credit score, exercise patience and adhere to the advice provided below.

Pay Off Any Debts You Have

After losing a job, it's critical to prevent your credit score from declining because doing so might limit your career options. For your credit score to remain unaffected in such a case, you can think about selling your possessions and paying off your debts. As long as you don't spend too much, you can make use of your savings and reduce your spending until you find a new employment. 

Not Making New Loan Applications

It could be challenging, but you shouldn't choose new loans while you're looking for work. You are more likely to get into a debt trap as a result. You may ask for a lower interest rate or a loan restructuring by extending your payback period if you have a long-standing relationship with the lending bank or creditor. 


Though it may result in a higher total rate of interest, extending the payback period will result in lower monthly payments that you can make up to the point at which you find another work.

Always look for discrepancies in your credit report

It's important to make it a routine to check your credit report for inaccuracies and to see if your debt repayment status has changed. You may choose from a variety of financial tactics as you attempt to maintain a high credit score. 


You may make the most of your tactics by fine-tuning the results with the aid of a credit report. This will enable you to quickly and effectively restore your credit score.

Cut Back on Credit Card Use

To maintain a low credit utilisation rate, you must always restrict your credit card usage to 30% of the credit limit. A borrower managing their financial obligations effectively is indicated by a low credit utilisation rate. 


Old credit cards might also be kept in order to keep your credit utilisation percentage within the allowed range rather than being discarded. 

Conclusion 

Even if losing your job could seem like the end of the world, the article must have made it evident that, with the right debt and money management, you can bounce back from the circumstance. Therefore, it's always a good idea to manage your money wisely, get insurance for you and your family, and start setting money aside that will be useful in an emergency.



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