Your credit score

is one of the most important factors that lenders look at when deciding whether or not they will extend credit to you. Therefore, it is important that you try to maintain a credit score that is as high as possible. But with unemployment remaining at all-time highs around the nation, many are worried about what will happen to their credit score if they lose their job. But there are ways to maintain your current credit score and even improve it while you’re looking for a job.

Losing Your Job Doesn’t Affect Your Credit Score

There are a few different factors that affect your credit score: your payment history, amounts owed, length of credit history, and type of credit used. While creditors may consider your current income or employment history in their credit granting process, being unemployed will not, in itself lower your credit score. This is because your income level or current occupation doesn’t come into play when credit bureaus calculate your score. Rather, it is what you do with your credit, whether you are working or not, that will be important.

Making Your Payments on Time is Important

Being late on your payments will be reported on your credit file and therefore cause your score to go down. As such, you should strive to continue to make your monthly payments on time even if you lose your job. And this is precisely why you need an emergency fund of 3 to 6 months expenses.  This way you can continue to make your payments while you look for a job. If you find that your current income doesn’t allow you to make all of your payments, contact your creditors to try and work out a solution. In some cases, they will agree to modify your monthly payments, reduce your interest rate, or even allow you to make your payment later than the regular due date.

One thing to avoid above all is having accounts canceled for non-payment and sent to collections. Even if you do pay off the bad debt after it’s been sent to a collections agency, the derogatory information will remain on your file for seven years.

Avoid Using too Much of Your Credit

When you’re unemployed, it may be tempting to use credit cards to make more of your purchases, thinking that you will be able to pay off the debt later on when you start working again. Even if this is true, this can have a negative effect on your credit score.

One of the factors involved [Read more…] about Your Credit Score During Unemployment