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Do Employers Check CIBIL Reports Before Issuing Offer Letters?


Do Employers Check CIBIL Reports Before Issuing Offer Letters?

  • By Saral Credit
  • September 16, 2022

You shouldn’t be surprised if your employer asks you for a credit report.

The trend has already been introduced in India, and many companies have even adopted it. For some of you, it looks strange, but some companies are nowadays considering your credit report before offering you an offer letter.

How Does CIBIL Score affect Your Employment?

Recently, TransUnion, aka CIBIL, has collaborated with Global Credit Bureaus and firms that take care of the initial screening of the employees. Under this collaboration, the CIBIL report will be offered to the recruiters/employers when applying for a new job. Today major MNCs have already adopted this culture, while many small companies still skip it for direct recruiting. The current scenario has the culture of checking the applicant's complete background, including their medical, educational, criminal, and previous job experience, to ensure the firm/company is hiring the right guy. However, adding the CIBIL report in this eliminates the hard checkup for their background.

The reason is that any applicant with good credit history is unlikely to have any negative feedback or be involved in any illegal activities.

The culture of checking CIBIL reports was introduced by the State Bank of India in 2016 when the PSU bank clearly mentioned that the CIBIL score of the applicants would be a strong criterion for the selection. Apart from your CIBIL score, your ongoing loans, debts, credit card bills, etc., will also be checked. If such practices are found, the application will be immediately rejected.

What is a CIBIL Score?

CIBIL is a three-digit number that represents the creditworthiness of an individual. The lowest credit score is 300, and the highest is 900. The number derived for every individual is calculated based on past finance history, including loan payments, credit card bills, etc. the CIBIL report brings all financial information into one report making it convenient for banks, lenders, and nowadays employers to check how the applicant manage money and to what extent they manage the ongoing loans.

The prime purpose of introducing the CIBIL report is to determine the borrower's creditworthiness. It gives the current financial condition of the applicant, which has a strong impact on the mental health and hence has an indirect relation to the work and their performance. However, employers are nowadays considering it as a parameter to find the reputation of applicants.

Let's understand this with a simple example.

Raman has a credit score of 450. The reason behind such a low credit score is that he has two overdue in the form of a personal loan and a car loan. Moreover, he also holds three credit cards which he pays the minimum due amount. This results in heavy debt with time.

Any applicant with financial problems will find it challenging to complete the job on time, with 100% concentration. Moreover, such employees also have mental stress that can cause health issues and become a liability for the company. The employer will immediately reject his application if he applies for a job.

That said, you get a better knowledge about why freshers or experienced professionals are highly recommended to maintain a good credit score that can leverage their dream job hassle-free.

What Points do Employers Look at in your CIBIL Report?

Knowing what employers look for in your CIBIL report is essential. Below are the major points considered before sending the offer letter to the applicant.

Repayment History: The repayment history checks are the 35% factor in deciding the trustworthiness and creditworthiness of the applicant. A single delay in your EMI can drastically affect your credit score. That's why you must ensure timely repayment of your EMIs.

Unsettled Cash: Your credit report includes the list of unsettled accounts and the cash amount. This contributes to 40% of the applicant's credit check. If the applicant cannot maintain a steady cash flow for the loan/credit card repayment, it is a big concern for the company before shortlisting him for the appropriate job.

Credit Mix: This is the information that includes different credit facilities being used by the applicant. It contributes to 10% of the credit checks. Every applicant must have a mix of credit facilities, including secured and unsecured loans.

Credit Report and Employment - How are they Related?

You already know that the CIBIL report includes everything related to your credit history that is finally calculated as a credit score. However, the report is nowadays being used by employers to shortlist the right candidate and give offer letters to the right candidate. The point here is what companies derive from the CIBIL report of any candidate. Let's find out.

Responsibility: The CIBIL report gives insight into loan payment history, including tenure of loan, previous payments, delay in payment, overdue, etc. This tells the employer about how the applicant manages their money. If an applicant cannot manage the timely repayment of their ongoing loans, how can a company expect them to manage a client and other organizational services? Responsibility towards your commitment matters, and you can easily evaluate with the information from the CIBIL report.

Organizational Skills: Managing your money is a wise practice that not everyone can do. It requires organizational skills, the same skills that help professionals run successful companies/brands. If the credit report involves mismanagement of the funds that result in heavy overdue, this tells that the applicant lacks organizational skills, which may result in loss to the company.

Use of Available Resources: Most companies provide many facilities and resources to uplift employees. However, not all can take benefit from such resources. Any applicant with heavy misuse of credit cards can also do the same with resources provided by the company. Such applicants can't use the available resources wisely. CIBIL report gives you an insight into the applicant.

Trustworthiness: The CIBIL report is nowadays considered the parameter to check the trustworthiness of any job applicant. If you are given a personal loan, and you are not managing them in the right way, you can't be trusted. Your loan account can move to NPA, but no company can bear such a loss. Hence, the CIBIL report shows the integrity of every application that you can consider before sending the offer letter.

Honesty: A successful business/company relies on its honest employees; that's why it's always a challenging task to find the best-suited and honest employees for your firm. Any applicant with a bad credit score can't be an honest guy to work entirely for the business's growth. Instead, such candidates focus only on settling their dues or getting more money to enjoy their lavish lifestyles. With a credit report, you can conclude the honesty of the applicant.

Purpose of Job Switch: This common reason most employers find during credit report checkups. Most applicants look for jobs with a higher salary to compensate for their EMIs and give them a higher standard of living. The prime purpose of such applicants is to earn money rather than grow their skills or work on a new project/client.

So, what are the ways that you must choose to ensure your credit score doesn’t harm your employability.

Keep Check on Your Credit Report: A good credit score is all you require to land your dream job. For that, it's essential to keep track of your credit report and check for any mistakes or errors. In case you find any issue, reach the credit bureau and get it rectified immediately.

NOTE: It takes nearly 30 days to get a response from the credit bureau with the updated credit report. So, don't waste your time waiting for the right time.

Maintain Timely Repayments: Employers check your repayment history information (RHI) which gives an insight into your repayment behavior and how you manage your existing loan accounts. Hence, you should prefer timely repayments of your loans without any delay.

FACT: 60 per cent companies don't hire an employee with a low credit score

Credit Score Checks – Basic Component of Background Verification

Now you understand why big companies have included the CIBIL reports check as a common culture for background verification of any candidate. Big firms of different sectors have already considered it as a crucial parameter before sending the offer letter to the new joiners.

Interestingly companies with credit report checks have found potential candidates for their job openings as they successfully find honest and reliable employees for their company.

This brings us to the end of this information. If you are planning to get your dream job, it's essential to maintain a good CIBIL score.