A couple of decades ago sticking with one employer for several years while trying to advance your career within the organization was the norm. Job hopping was not only rare but also frowned upon.
The situation has now changed.
The younger generation embraces and encourages the frequent change of job in search of fulfillment, career advancement, better working environment. Surprisingly, better pay is not among the top factors that job hoppers consider before making a decision.
As expected, older generations don’t like this trend and blame it on the restlessness and entitlement of millennials.
The other group that is not cheering job hopping is the creditors. Creditors are more likely to approve a loan application by a loyal employee compared to a job hopper. You might also get better terms if you have been in one job for a long period of time.
But what exactly is it that creditors don’t like about job hoppers?
Gaps in your income
When you apply for a loan, the potential creditor searched with realistic loans website will check your financial details as they assess your ability to repay the loan. If you are employed, the regular income offers the lender some assurance that you are capable of repaying the loan installments regularly.
If you change your job often, you are bound to have some gaps in your income records. Such gaps are not an attractive feature to lenders especially if they are many and close to each other. It is even worse if some of the gaps are long i.e. many subsequent months.
To a creditor, the worry is that even though you are currently employed, you might soon lose your income and, subsequently, your ability to repay the borrowed money. If the lack of job extends to several months, it could lead to default.
This portrays you as risky borrower and you may, therefore, be turned down by lenders.
Frequent changes signify unreliability
Quitting your job for a better job shows your ambition. Anyone would also excuse you for quitting a job in which the working conditions were not bad or if you changed job because your employer closed shop.
A lender would not necessarily judge your character negatively based on these situations.
However, if your employment record indicates that you leave a job after a couple of months for flimsy reasons, it portrays you as unreliable.
A loan is basically an agreement based on commitment and thus each party seriously takes the reliability of the other party into consideration. As such, anything even mildly suggests that you are unreliable and can change your mind so easily will surely cause the lenders to worry.
A creditor can, therefore, decline your loan application based purely on the notion that you are unreliable.
When job hopping lowers your credit score
One of the downsides of losing your job and income is that you may fail to clear some of your bills. You may also fall back on your credit card payments and, if you have other loans, the repayment plan may also be affected.
Payment of bills and adherence to your loan-repayment plan are all some of the parameters considered when calculating your credit rating. As such, if your lack of job and income affects any of these parameters, it will surely affect your credit rating.
When it doesn’t
Unemployment alone does not lower your credit score. In fact, the creditor may not even know that you are unemployed unless you report it to them.
Unemployment will not affect your credit rating if:
- You continue paying your monthly bills consistently
- You do not fall behind on your loan repayments
- You did not have a loan in the first place
- You do not need to take new loans to fund your new life without an income
How to avoid hurting your credit score while changing jobs
If a lender is determined to perceive your change of jobs as unreliability, there is nothing you can do about it.
Fortunately, while a creditor’s perception of you may affect your creditworthiness, it does not have a direct impact on your credit score.
One of the best ways you can protect yourself is to make sure that you have secured the new jo before quitting your current one. But not everyone is that lucky.
If you have to leave the current job before getting a new one, you need to prepare yourself adequately.
You can take the following measures to ensure that as you change jobs, the period you will be without a salary does not affect your credit score.
- Set aside some emergency cash before quitting your job to cushion you from needing to take new loans
- Invest in an asset you can easily convert to cash
- Apply for unemployment benefits. Although not much, the benefits will help pay some bills.
- Avoid the temptation to open new credit card lines. Having several accounts lowers your rating
- Pay your bills by any means possible
- Renegotiate current loans to smaller installments or, for the student loans, ask for a deferment
- Get a temporary source of income
Determining if the change in job is worth it
A sudden change of jobs can definitely have a negative impact on your creditworthiness. You should therefore only make the switch if the benefits outweigh the possible cons e.g. if:
- You are stagnated in your current job and your skills are not well utilized
- You discover your current salary is unreasonably below the market rates
- You have a new job offer that pays significantly more than the current one
- The new job offers upward career mobility
- There is harassment of any type in your current job
It is also important to assess the job situation sensibly to ascertain you are not quitting for flimsy reasons. You also don’t want to quit just when your opportunity for growth is about to come up.
Overall, you should only change when you are convinced that the move will help you progress in one way or another.
A quick search online will show you many articles claiming that people that change jobs frequently are better workers, earn more, progress faster in their career etc. What they don’t tell you, however, is the damaged job hopping has on your creditworthiness and reputation as an employee among other things.
You must, therefore, be careful before making the leap. You need to be sure that the change is good for you and also that you are financially prepared for the period you will stay without a job and salary. Other than your creditworthiness, this period might also have an unanticipated negative impact on your career progression.