Over the past three years, the appointments of 20 candidates selected through the Institute of Banking Personnel Selection were cancelled or offers were withdrawn due to poor credit history.
A good credit score has long been essential for securing loans.
Now, it is also becoming critical in getting hired.
According to a recent media report, Minister of State for Finance Pankaj Chaudhary said in the Rajya Sabha that over the past three years, the appointments of 20 candidates selected through the Institute of Banking Personnel Selection were cancelled or offers were withdrawn due to poor credit history.
Where are employers using it
The use of credit history and credit scores in hiring is most visible in the financial services sector.
"Credit score checks are used primarily in banking, financial services, insurance (BFSI), fintech, and non-banking financial companies (NBFCs), especially for roles handling money, credit decisions, or sensitive data," says Arun Ramamurthy, author of the book Unlock the Power of Your Credit Score.
According to Niren Srivastava, group chief human resources officer, Motilal Oswal Financial Services, this practice has been prevalent in the financial services sector for the past 10 years or so.
"It is a mandatory assessment in most financial institutions in India now," says Rituparna Chakraborty, partner and India lead, True Search.
"Credit history and score are used for positions such as collections manager, treasury management, credit underwriter, and roles involving access to confidential financial data or client accounts," says Sonam Chandwani, managing partner, KS Legal & Associates.
Ramamurthy says employers check credit history and score while hiring for senior finance and treasury roles in non-financial companies as well.
The practice has been more common in the private sector.
Public-sector banks have now begun to use it.
"What is new is its formalisation and visibility in public-sector recruitment," says Ramamurthy.
Why employers check it
Employers view a candidate's credit report and history as indicators of financial discipline.
"Credit history offers insight into a candidate's ability to behave in a responsible manner when dealing with clients' money," says Srivastava.
It is seen as a proxy for integrity and a possible indicator of vulnerability to fraud or undue influence.
Is it legally tenable?
Experts say the legality of using credit history in hiring depends on relevance, consent, and proportionality.
The use of credit score is regulated by the Credit Information Companies (Regulation) Act, 2005.
Employers must ensure informed consent before accessing such data.
"Any usage must be non-arbitrary and rational and in light of the constitutional right to privacy recognised in Article 14 of the Constitution," says Chandwani.
Employers can rely on credit score in limited, role-specific situations.
"Using it as a blanket filtering tool across all positions would be legally vulnerable and open to challenge," says Chandwani.
Employers should specify a sound credit score as a prerequisite at the initial stage of hiring.
"The Supreme Court and high courts have ruled that employment cannot be rescinded based on a condition that was not in existence at the time of advertisement," says Varun Katiyar, advocate, Chambers of Varun Katiyar, Supreme Court.
Check credit report early
Candidates, especially those applying for jobs in the BFSI sector, should review their credit report 6 to 12 months before applying.
They should examine their repayment track record.
"This is the factor that has the strongest influence on the credit score," says a TransUnion CIBIL spokesperson.
They should also check for defaults, late payments, and overdue accounts.
If candidates spot an error in their report, such as a loan they do not recognise or incorrect payment records, they should raise a dispute with the credit bureau.
The bureau refers it to the bank or institution that reported the information.
Complaints are typically resolved within 30 days.
Improving score takes time
A credit score depends on an individual's credit history over the past two to three years.
"Credit scores improve through sustained and disciplined credit behaviour.
Early improvement may be visible within three to six months of timely repayments and controlled credit usage," says Sunil Agithakaliya, chief operating officer, CRIF High Mark.
He adds that more meaningful improvement, particularly in cases involving past defaults or prolonged repayment delays, can take a year or longer.
Steps to improve your score
Source: CRIF Highmark
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Feature Presentation: Ashish Narsale/Rediff