Despite the fact that the credit bureaus have been in India for over 15 years now and have been in active operation for over a decade, people still have their own conceptions and misconceptions on the factors that impact this important facet of one’s financial life. One of the questions that got asked in one of the forums was if the frequent job change will affect one’s credit score. Technically speaking, the same will not have a negative impact.
Let us understand why technically it will have no bearing on the score. Following are the five factors that impact the CIBIL score calculation:
This parameter carries a weightage of 35%. Historic repayment pattern or payment history as it is termed as, has the most impact on the score. In case one has defaulted on repayment in past, logically it will impact the scores negatively. So one has to ensure that the repayments of all the EMIs or credit card payments are happening on time.
The total amount owed by one also has an impact on the three digit numerical figure that denotes one's probability of defaulting in future. Having a weightage of 30% in over all calculation, this parameter is quite logical. Higher the amount owed by an individual, higher would be the chances of him or her to get into debt trap and default.
This parameter carries a weightage of 15%. Longer the person has had been exposed to credit, the better it is. Naturally when a person has been performing well for over longer years, it is logical to derive assumption that he is a responsible borrower and shall continue to be one in future as well.
Again a person with good performance across various kinds of loans viz. secured (home loan, car loan, gold loan etc), unsecured (personal loan, over draft etc) and revolving credit (credit cards) gets construed as person’s ability to manage his finances and seriousness towards repayment of the obligations. This parameter carries a weightage of 10%.
Since each additional loan will put pressure on the resources (as in income) that the individual would have, the new loan or any other credit facility taken by an individual would negatively impact the score. While the impact is not very high and actually helps in building the credit profile even further if paid in time, this is an important factor as well and carries a weightage of 10%
As is evident from the above description, only one's performance on the trade lines impact the credit score, technically speaking even a highly frequent change in jobs will have no bearing on the score. Having said that, following are the factors, that may still come to be a spoil sport.
Any job change leads to a brief pause on the income. Most of the transitions lead to not receiving funds for a month or two. If a person has not planned well in advance, he may not be able to service the EMIs in time. Frequent job changes may lead to frequent non-payments which will reflect on the bureau report and can potentially lead to low CIBIL score.
Even after the person repays the outstanding amount to the banks, frequent delays will lead the underwriter to believe that the borrower is habitual in defaulting and may decline the loan application despite regular payments reflecting in report currently.
So, if you are looking at changing jobs, you must have prepared yourself and planned on how to repay the loan in time.