Tips to Maintain Your Credit While Job Searching or Unemployed

This content is provided courtesy of Savvy Money.

A 2010 study by SHRM revealed that over 60% of employers screen applicants’ credit before finalizing employment. There are several legitimate reasons for this: employees in financial difficulty may be more likely to embezzle, may be more stressed and less productive at work, and poor credit management may reveal personality traits that would make you an irresponsible employee.

If you’re looking for a new job, this can put you in a Catch-22, particularly if you’re unemployed. You need good credit to get a job, but you may be struggling with limited income. We’ll talk about a few tips to manage this situation, but first let’s understand what parts of your credit file employers can look at.

Employers can look at your credit file, but not your credit score. What’s the difference and how does this impact how to manage your credit in this situation?

Your credit file is a compendium of your credit accounts, credit line, account balances, and payment history. It particularly highlights “negative actions” like foreclosure, bankruptcy, loan charge-offs, and delinquencies. Employers will tend to focus on the “negative actions” on your report, looking for irresponsible financial management behaviors.

Your credit score is merely a numerical score that lenders uses to predict your probability of default on a loan based on your past behaviors compared to people like you. The credit score is more nuanced than merely the negative actions—it includes your credit line utilization (how “maxed out” you are), what types of accounts you have, the length of your credit history, and recent credit applications. In short, your credit score will penalize you in a lot of areas that employers never check.
Because of this, what you really need to focus on as a job seeker is keeping negative actions off your report rather than trying to maximize your credit score. Here are a few quick tips on how to do that:

1. Fix any errors: if you’re struggling financially, errors will just make you look worse. Get free copies of your report (annualcreditreport.org) and contact the bureaus if you see errors.
2. Stay current: Delinquencies and non-payment will be the first thing that employers notice.
3. Stretch your cash: If you’re out of work, you may wish to make only minimum payments on your accounts. Although this will cost you more in interest, your account will still show as current and you’ll maximize your cash situation in case it takes a while to find a job.
4. Delay bankruptcy until after you get a job: bankruptcy will be a big red flag for employers and you should do everything you can to keep it from getting on your credit file.
5. Negotiate with creditors: if you can’t make payments, contact your lender and try to work out a payment arrangement that will not show up on your credit report.

Proactively address your situation with your employer: If you’ve been unemployed, bring up the fact that it’s been a difficult time and try to draw a distinction between your credit performance before your financial difficulties and after. If you deal with it in advance and highlight your positive past behaviors, you can put recent negatives in the best light and explain it before your prospective employer pulls your file.