Pleasant Credit
Good Credit Reports & Scores

A credit score is a number that helps lenders and others predict how likely you are to make your credit payments on time. Each score is based on the information currently in your credit report.  During this economic recession, a great many people are concerned about whether or not their being unemployed will have an affect on their credit score.

It is an excellent question that requires a rather lengthy explanation.  By law, credit bureaus are prohibited from using employment status as a part of the mathematical formula that they utilize to formulate your credit score.

But it isn’t quite that simple.  Your credit report does include basic information about you, including your name, Social Security number, current and former addresses, and current and past employers. If you’re unemployed, that information can work its way into your credit report, though not your credit report score.

The fact of the matter is that if you are currently unemployed, for whatever reason, your chances of getting a loan or being extended a line of credit are greatly diminished.  Lenders and credit issuers can and will consider a variety of factors beyond your credit report score when they process your loan or credit application.

These factors include, but are not limited to, how much debt you currently have, your credit history, your employment history, and the amount of debt you can handle at your current income.  So, while your credit report score won’t be affected by your employment status, your ability to secure a loan or a line of credit very well may be.

From the lender’s perspective, taking your employment status into account before extending you a loan or credit is just good business. Even if you have a sterling credit score, the absence of a steady income can raise concerns about your ability to pay off a loan or a credit card bill.

Fortunately, there are steps you can take to keep your credit score at or near its current level while you look for work.  Your credit score is a three digit number ranging somewhere between 350 and 850. In general, any score of 720 and above is considered to be very good.

Your credit report score is based, for the most part, on six factors: your credit history, your payment history, outstanding credit lines, existing accounts, new accounts, and recent inquiries.  While there may not be a great deal you can about credit inquiries and your credit history, there are steps you can take to maintain control over the other components.

New Credit Accounts – While you are between jobs the last thing in the world you need to be doing is taking on more debt. Put those credit cards away, and by all means, do not apply for any more credit.  To avoid taking on new lines of credit; shred and/or discard offers for another credit card.

Existing Credit Accounts – Stay vigilant in paying your bills. And by all means, make sure you pay them on time. Even if you can only afford the bare minimum, be sure that you pay on time and do not miss any payments.

Your Outstanding Debt – No huge revelations here, but adding to your current debt can only hurt your credit score. Avoid taking on more debt, which will no doubt adversely affect your credit score.  This includes adding to your debt through new accounts or interest on your unpaid debts. The closer you are to your credit maximum, the bigger a risk you become in the eyes of lenders.

Your Payment History – While there is little you can do about your past history, you most certainly can have an affect on the present, the current month, and in the future.  If you haven’t done so already, work out a monthly budget that will allow you to pay off at least the minimum amount due on all of your bills, including loans and credit accounts.

Being unemployed is rarely an ideal situation, but if you can stay disciplined and stick to a budget, you may very well end up okay without damaging your credit report score. Doing so may require sacrifice in other parts of your life, but it will help your credit score in the long run.

Using a credit report to make a hiring decision is essentially making a value judgment.  The employer is saying, “I think you’re an irresponsible and careless person because you have a bad credit report.”  Is it fair to judge potential workers by their creditworthiness?  This is an important issue currently being debated by many. 

Privacy and civil rights advocates say employers are unfairly using credit histories to weed out the down and out.  Other people think that a credit report is an unfair lens through which to view job applications.  They are opposed to any hiring tools that have a discriminatory impact.

Job seekers should be prepared to explain mitigating circumstances about their personal finances.  Unfortunately, employers are increasingly using credit reports even while filling low-paying jobs, often sought by low-income workers and others who loss higher paying jobs and are now trying to make ends meet.

In over 25 states, Legislators are debating proposed bills aimed at restricting when credit histories can be used in the hiring process.  The current economic stress is the main trigger, Legislators are responding to the impact the recession has had on employment.  The main concern about these proposed bills are they may be too broad in restricting employers from checking a job applicant credit report.

The giant credit bureaus, TransUnion, Equifax, and Experian, oppose these bills.  They argue that employers want to know whether a job applicant acted prudently while previously employed.  Credit bureau opposition to pending legislation is in their financial interest because they sell the tools for employers to receive pre-employment credit reports.  Also, in the current economy, many who had good credit histories while previously employed now have poor credit records after long periods of unemployment.     

In California, the foreclosure crisis has combined with a 12.4% unemployment rate to erode the credit status of millions on state residents.  Yet, 60% of US employers conduct credit checks on job applicants, according to the Society for Human Resource Management, (SHRM).  SHRM argues that employers should use credit reports very judiciously, primarily late in the hiring process and mostly for sensitive managerial positions.

Despite what you may have heard or read, employers do not have access to job candidates’ credit scores. That should come as a relief to strapped job seekers with maxed-out credit cards or other score-busting blemishes.

But your prospects for getting hired aren’t immune from a poor credit history. In most states, employers are able to check a potential or current employee’s credit report, which lists information such as balances on your loans and credit accounts, late payments and debt collections.

About 13% of employers check credit reports for all candidates, and 47% check for those applying to selected positions, according to the Society for Human Resource Management. Employers are usually most interested in the credit backgrounds of applicants who will handle finances, hold an executive-level position or have access to other employees’ confidential information (such as human resources professionals).

The black marks that might give an employer pause are ones that leave the deepest stains on your record: a loan default, a bankruptcy, a debt that’s gone to collection.

An employer must obtain your permission to pull your credit report. But declining is “like saying no to a Breathalyzer test,” says John Ulzheimer, the president of consumer education for SmartCredit.com. The consequences are sometimes worse than just getting it over with,” he says — namely, the employer could choose another applicant for the job if you are secretive.

Be honest and upfront about any problems. A potential boss may be sympathetic to the financial trauma that a layoff and long bout of unemployment have caused. And keep in mind that your credit record is only one piece of your profile. According to the Society for Human Resource Management, credit history ranked lowest among criteria employers used to vet candidates.