bad credit loan impact on unemployed
  • Alan Jose
  • November 17, 2020

People often have a hard credit check after applying for a car, home, mortgage, rent, study, or any other forms of loans. However, a person with a bad credit rating can lower it through new application rejections, or reapplication.

Many employers do check a candidate’s credit score before hiring. A large number of impacts can occur when seeking employment with bad credit or applying loans for the unemployed with bad credit.

Companies do credit checks after receiving written consent from a prospective employee. A bad score can lead to the rejection of lateral hires. Besides this, it could also become a reason for firing an existing employee.

Impact of Bad Credit on Your Employment

●       Rejection

Many employers seek lateral hires for higher positions to manage company finances. Law, finance, senior management, police, army, etc. do a thorough background check before recruiting.

The background checks done after receiving the candidate’s permission reveals credit checks, criminal history, personal information, etc. It helps to validate candidate identity, money handling capabilities, and ascertain job suitability.

Unfortunately, a bad credit history due to insolvency or bankruptcy may put the employer’s interest off from the potential employee. It may raise concerns as the person would have to handle company finances. Therefore, they may reject such candidates.

However, the same isn’t right for interviewees that apply for other posts such as content writer, app developer, website builder, etc. Company owners may still check their credibility and verify the identity through credit checks.

●       Recruitment on Contract

A few companies may willingly hire employees on a contract basis in the hope that they can clear their debt, improve their rating, and provide value to the organization. But they may hire him or her on contract to stray away from any legal or financial obligations of the employee.

Moreover, the contract could hold a probation period so that the employee can improve credit ratings and showcase results to the organization. It would also help the company determine whether the candidate’s suitability for the job profile.

Lateral hires could improve their chances of full-time recruitment after contract completion by improving their scores. Such a person would receive a high salary, achieve their career goals, and attain a permanent source of monthly income in return.

●       Firing

Just like a rejection of the application, an existing employee can face repercussions of a bad credit rating in the UK. Primarily, he or she could get fired with a low rating as a probable cause. However, most employees tend to avoid such a situation.

It only happens in case an employer is unsatisfied with the work, or has to grant a P45 to an employee with a bad credit score. Also, employers wouldn’t require the full information of the person they may fire. They only need the credit rating to come up with a decision.

But employees can safeguard their jobs by opening a channel of communication with the employer, and the recruiter(s) to avoid any dire circumstances, such as firing or PIP. Besides this, employees with a bad credit score can even permit the employer to do a hard check after improving it.

A few methods of improving credit scores include paying off debts, loans, or borrowed money. Also, avoid mistakes in the report, restrain from multiple credit applications, and ascertain visibility on the electoral roll. Some borrowers might find it hard to pay off debts, but it is far better than unemployment.

Besides this, employees can take secured loans to pay off debts before submitting their permission letter for a hard check with the employer. Job security would help them to achieve the loan faster than other applicants and at a low-interest rate.

●       Dismissal of Application

Rejection can occur even during the second or third phase of recruitment. However, the first phase involves the viewing of applications. The employers may only contact a suitable or potential person for an interview after viewing their resume or application.

At times, they may ask for a credit report along with the resume. Recruiters may reject the application of potential employees for the company if the credit score is terrible, and it isn’t suitable for the job role.

Unfortunately, this is a prevalent practice that can delay employment even in a startup. It may also lead to the hiring of the same employee at a lower salary, or on the contract before raising the pay.

●       No Effect

Besides the severe repercussion of bad credit, such as the dismissal of application, firing, rejection, and hiring on contract, or probation, there is also “no effect”. It means that the employer may not get bothered with a bad credit score of a potential employee.

The employer may disregard it in case the candidate is applying for a profile that is unrelated to finance, legal, or government. The disregard could also happen if the candidate is facing a home loan, credit card, mortgage, or other debts.

In some cases, the employer may consider longer retention of the employee because they need to clear their debts. Also, low salary employees or freshers would face only a soft check or hard check for identity or credibility verification purposes. Therefore, both employees and potential employees should improve their credit scores to avoid such circumstances.

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Representative Example

Amount of credit €2,500 for 2 years. Interest rate: 75.3% pa (fixed). 24 scheduled monthly payments of €204.29. Total repayment of €4,902.91. Interest: €2,402.91.Representative 107.57% APR.

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