Traditionally, jobs provide people with stable security from day-to-day expenses and other necessities. Naturally, losing a job can negatively affect your life. Unexpected events like these can turn your life upside down and force you to rethink your financial priorities and future plans until you find a job.
However, it’s also important to keep in mind that being unemployed can ultimately impact your credit score if you don’t repay in a timely manner. A credit score is a three-digit number that tracks your credit and repayment history. So, paying off your loans and debts on time can help you avoid credit score loss even if you suddenly lose your job.
In this blog, we will dig deeper into the relationship between jobs and credit rating and how losing a job can hurt your credit rating.
What is your credit score and how is it related to 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 ratio, monthly income, previous 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 highlighted internally in several places.
Each person also has unique repayment patterns and debt situations that are tracked to measure their ability to repay. Now, there is a good chance that your application will be rejected if you have a bad track record, too much debt or low income.
Let’s understand the difference between good and bad credit and how you can keep your rating stable despite unemployment.
What is the difference between good and bad credit?
Banks and various institutions use credit scores to determine your creditworthiness. They are also known as risk scores because they allow lending institutions to determine if you can repay the loan.
Generally, credit scores vary between 300 and 850 depending on the credit report organized by CIBIL. A A credit score above 700 is considered good and indicates that the borrower can repay debts on time.
A score between 600 and 700 is considered average, while a score below 600 is considered poor. Your loan application will probably be rejected if your score is below 600. So, let’s discuss some tips below on how to improve CIBIL scores even when you are unemployed.
How to improve the CIBIL score while you are unemployed?
A good credit rating is a reflection of sound money management. Improving your CIBIL score takes patience and discipline. Let’s discuss some practices you can incorporate to maintain a healthy credit score:
- Repay credit bills on time
Reimbursing time credits remains one of the most pragmatic approaches to increasing your CIBIL score. Several credit institutions verify the use of credit; therefore, paying off loan bills over a period of time can significantly increase your CIBIL score.
- Do not accept credit
Businesses and banking institutions can easily track new loan applications. You might be tempted to take out a few loans to meet your needs when you are unemployed. But remember, if you fail to repay, your credit score will be hampered.
Avoiding new lines of credit is the best solution when you don’t have stable income.
- Recheck the CIBIL score for inaccuracies
There is always a possibility that your credit report may have discrepancies. System errors and glitches can damage your credit score. It is therefore essential that you carefully check your credit reports for all details and monitor them monthly to maintain a healthy credit score.
- Reduce credit defaults
Having bad financial patterns can negatively affect your credit score.
Remember that any type of liability, such as credit card bills or short-term loans, can have a direct impact on your credit score. In addition, credit agencies monitor late payments.
And hence, you must repay these loans in a timely manner to avoid low credit scores.
Your credit score is a reflection of your creditworthiness. If you suffer a job loss, you are probably at risk of not paying. This can, in turn, affect your credit score. But the good news is that you can still maintain your credit score by following the tips mentioned above. Also, you might miss out on good job offers due to your bad credit history.
Losing a job can be unsettling, but try to manage your credit bills in time to have a good credit score!