Can Your Credit Score Affect Your Job?

How your credit score affects your chances of getting that dream job.

To what extent does your credit history affect your chances of getting a job? Can an employer run a credit check? If you have a bad credit record, how will it affect your prospects for securing employment?

What is a credit score?

A credit score is a number that shows how likely you are to pay your debts back. The higher the number, the better it is. A credit score is determined by looking at your personal details and financial behaviour. Lenders use this information to decide if they want to lend money to you. This analysis also helps them decide on the amount they will lend you. It always plays a role in determining your loan timeframe and interest rate.

Can potential employers check your credit?

According to the National Credit Registration Act that was created in 2002, the credit registration system legally requires employers to get your permission before running a credit check. Employers can only request such a check once you become a candidate for employment in a position that involves dealing with cash or finances.

If your credit report was obtained for employment purposes without your consent, you can lodge a complaint with the National Credit Regulator via email: [email protected].

Why do they need to check your credit score?

If the position involves dealing with cash or finance, then it is perfectly understandable why a potential employer would want to check your credit record. They are trying to answer two important questions: Can you be trusted with money? And, are you who you claim to be?

For example: if a person had excessive debt or several credit cards with high balances, it could suggest they may be in financial trouble. This elevates the risk that they may steal from or defraud the company.

Even if the position doesn’t involve dealing with cash or finances, employers are concerned that the financial situation of an employee may create unnecessary stress or distractions in the workplace. This could lead to debt collectors calling or requests for attachment orders. Most employers would prefer to hire someone who is not in financial distress. If the position does not relate to finances, you do have the right to refuse permission for them to do a credit check on you.

How do you check your credit score?

Checking your credit score is a relatively easy process. You should check your credit report on a regular basis. There are a number of free websites to check your credit score, but the four main credit reference agencies in South Africa also allow you to access your credit report, for free, once a year.

These agencies are:

• Experian
• TransUnion
• Compuscan
• XDS

How to improve your credit score

If your credit score is lower than you’d like it to be, you may need to take some steps to try and improve it. A positive payment history is the most influential factor in a credit score. You don’t want to be missing any payments. Missed payments will be recorded in your credit history for six years.

Your credit score will generally improve over time, as you keep up with your payments. All you need to do is pay your bills and creditors on time. If, however, your credit score is low, there are some things you can do to try and improve it:

• Pay your bills on time - A simple but effective way to improve your credit score.
• Keep your credit utilisation low - Your credit utilisation ratio plays a major role in determining your credit score. Generally, it is recommended that you should use less than 30% of your limit on any card.
• Check your report for any mistakes - Be sure to always check for any errors in your credit report, these can be fairly common and minor things can make a big impact on your score.
• Try to avoid closing new credit accounts - If you’re not using a certain credit card, it's best to hold onto it instead of closing the account. Depending on the age and credit limit of a card, it could negatively affect your credit score if you close the account.
• Limit how often you apply for new accounts - You will need to open new accounts to build your credit history. Trying to open multiple accounts within a short period of time will, however, be detrimental to your credit score. Rather, pace yourself. It’s best to consider applying for credit in a staggered way. For example, rather than trying to open several retail accounts in the same month, apply for 1 every 2-3 months. If you start trying to open multiple accounts within the same month, lenders may view you as desperate.

Can your mental health be affected by negative financial circumstances?

Finances and mental health often go hand-in-hand. Financial worries and stress can adversely affect your mental health. The stress of debt or other financial circumstances could lead you to feel depressed or anxious.

Debt stress can have harmful effects on a person, especially if they are not receiving the help they need. Here are some ways that debt can affect a person’s mental health:

• Additional stress - Debt can create additional stress which could either cause or worsen a mental health condition.
• Sleeping problems - Worrying about debt can lead to sleeping issues which could ultimately affect your mood, energy levels and your job performance.
• Negatively affect relationships - Debt also has the potential to affect your social life and relationships

Furthermore, your debt can also affect your mental health. Depression and anxiety can often make people lack the motivation to manage their finances. A manic episode could cause you to make impulsive decisions to the detriment of your finances.

How your financial circumstances may limit your employment opportunities

Your financial circumstances do have the potential to limit your employment opportunities. Many jobs require potential candidates to have their own car to get them to and from the office. A person who is over-indebted, may not be able to finance a car, thus hindering them from potential employment opportunities

Some remote job opportunities require a person to have wireless internet at home. Internet access does not come cheap in South Africa, and if you are struggling with finances, you may not be able to afford the cost of having WiFi at home.

If you’re a student and you are struggling with your financial situation, you may not be able to afford to pay for your studies. Unfortunately, this will also limit your current and potential employment opportunities.

Will Debt Review affect your credit record?

Yes, Debt Review will affect your credit score. This is, however, a temporary effect and you can rebuild your credit score once you have paid back all your debt. Once you are placed under Debt Review, you will be flagged as ‘Under Debt Review’. While under Debt Review, you will not be able to take out any more credit. This is to ensure that you do not get yourself into even more debt. Once you have completed the Debt Review process, your debt counsellor will send you a clearance certificate. Your debt counsellor will also contact your creditors and the credit bureaus. They will inform them that your outstanding debts have been paid off and you are no longer under Debt Review. Your credit score will then be set back to zero. From there, you’ll need to start rebuilding your credit score.

It’s important to remember that Debt Review will only temporarily affect your credit score. Once you’re debt free, you’ll have another opportunity to start building your credit score

Does Debt Review affect your employment?

Generally, Debt Review should not have any consequences on a person’s current or future employment opportunities. Debt Review is a positive rehabilitation process that assists and eradicates debt. There is no reason why Debt Review would be a problem for your employment prospects. There’s no reason why Debt Review should influence a potential employer's decision to hire you. Being under Debt Review shows that you are determined to take control of your situation. The only area where you may run into a problem is applying for a job that requires you to manage finances or provide financial advice.

Being under Debt Review should not affect your ability to keep a job. If necessary your debt counsellor could provide a letter explaining that you are under Debt Review and to inform your employer about the process.

Should you be concerned?

No, you should not be concerned at all. Your credit score is not the be all and end all of your life. We hope that you can find peace of mind knowing that you can get a job without having to worry about your credit record. For more help on how to improve your credit score, contact Credit Health.