In South Africa, credit scores are used in more aspects of life than ever, and this trend is impacting employability as well. Traditionally seen as a metric for financial institutions, credit scores now play a critical role in hiring practices for some employers, influencing their assessment of a candidate’s financial responsibility and stability.
Sonya Skipp, CEO of iFacts was asked to share information on how credit scores are used in employee screening and why they matter in job prospects, and the potential implications of their rising prominence.
Why Are Credit Checks Used in Employment Screening?
Credit checks in South African employment screening are typically used for positions where financial responsibility or trustworthiness is critical. Jobs in sectors like finance, accounting, and management, or any role involving access to funds or financial data, may require a credit check to ensure candidates demonstrate reliable money management.
By reviewing a credit score, employers aim to reduce potential risks, as a history of default or outstanding debt could indicate a higher likelihood of financial pressure that might lead to dishonest behaviour in roles where cash handling or sensitive financial information is part of the job.
Credit checks can provide insight into a person’s past behaviour around debt obligations, helping employers determine whether an applicant is likely to handle responsibilities reliably. In essence, the credit score becomes a measure of financial health and a candidate’s perceived integrity and reliability in roles where these qualities are essential.
The Rise of Credit Scores as a Public Measure of Financial Health
Credit scores are no longer just a metric for securing loans; they have permeated multiple areas of personal finance. In South Africa, banks have started actively promoting credit score awareness through their apps, where customers are encouraged to regularly check and improve their scores. Alongside banks, companies like ClearScore, Up by Experian, and Splendi provide credit score-monitoring services and even offer targeted financial products. This widespread access has encouraged many consumers to consider credit scores as a personal metric of financial fitness.
This shift in awareness can benefit individuals, as people who actively monitor their credit scores are more likely to address issues that could affect their finances, such as overdue payments or high levels of debt. TransUnion research shows that people who are aware of their scores and engage with them regularly tend to manage their debt more responsibly, making more efforts to reduce outstanding amounts.
However, with credit score awareness comes an increased likelihood of credit uptake, as these services often promote loans and credit products, thus potentially increasing debt for some users.
The Double-Edged Sword of Credit Scores in Employment
While a strong credit score may enhance a candidate’s job prospects in specific fields, the emphasis on credit history as an indicator of reliability can also become problematic.
Not all consumers approach debt with the same values or resources; someone with a low score may be financially responsible but have faced unexpected hardships that led to missed payments. Moreover, while a high credit score might reflect disciplined financial behaviour, it’s essential to consider that lenders encourage credit usage to improve scores. In some cases, people may be driven to take on credit they don’t necessarily need or which they may struggle to repay simply to build their score. Skipp stressed that absolute honesty with employers, present or future, is essential.
As the credit score extends into employment, it has raised concerns about fostering the right financial behaviours.
The Impact of Credit on Financial Behaviour
How credit scores are marketed and managed in South Africa can profoundly affect consumer behaviour. Since lenders use credit scores to gauge trustworthiness, consumers without any borrowing history may be pressured to take on small loans, such as store credit, to build their scores. This approach can help bring financial inclusion to underserved populations, giving them access to funds they may not otherwise have been able to secure.
Yet, with credit comes the risk of overspending. Credit can encourage consumers to purchase expensive items by breaking the cost into “affordable” monthly instalments. This approach can be misleading, turning a R15,000 expense into a R750 monthly bill that ultimately costs R27,000 with interest. This expense could have been avoided if the consumer had saved for a less expensive option. Whether it’s a pricey fridge or a top-end smartphone, these credit-backed purchases can lead to overspending, turning what might seem affordable every month into an expensive commitment over time.
Striking the Right Balance
While credit scores are a valuable tool for assessing financial responsibility, they also raise important questions about their influence over consumer behaviour and employment opportunities. For job seekers, understanding the role of credit scores in screening processes is crucial, especially in fields where financial integrity is essential.
Meanwhile, as banks and credit score platforms promote credit awareness, individuals need to approach credit with caution, understanding the true cost of loans and only taking on debt when it’s financially viable.