How Your Employment Status Affects Your Credit Score

A great many people are concerned about whether or not their employment status has 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. So no, employment status does not affect your credit score. But it isn't quite that simple.

Your credit report does contain a considerable amount of your personal information, including past and present employment histories. If you are unemployed then that information is pretty easy to decipher for any party that is so inclined. Note the distinction that we have made here though. Your employment status is NOT figured into your credit score, but employers are recorded on your credit report.

The fact of the matter is that if you are currently unemployed, for whatever reason, your chances of getting a loan or being extended credit are greatly diminished. Here is why: a variety of factors are taken into consideration when you apply for credit. These factors include, but are not limited to, how much debt you currently have, your credit history, your employment history and your current income.

Simply stated, while your employment status does not affect your credit score, in the real world it most definitely does affect your chances of getting credit. And if you think about it from the point of view of the lender, it makes perfect  sense. You can have the greatest credit in the world, but if you can't verify a current income source, how will you pay back the credit (and interest) that has been extended to you?

The good news is however, that there are steps you can take to assure that your credit score does not suffer while you look for work.

Your credit score is a three digit number ranging between 350 - 850. In general, any score of 720 and above is considered to be very good. There are six basic components that comprise your credit score. They are:

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.

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.

Your Payment History - While there is little you can do about your past history, you most certainly can have an affect on the present and future. Focus on paying all of your bills on time and try to pay more than just the minimum to reduce your debt.

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.

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.