Avoiding Bad Credit When Unemployed
At one time, all you needed to get a job was a resume and a few solid references. These days, however, employers are running background checks and accessing your credit history to determine what type of person you are. If you have multiple debts on your credit report or if you have a history of delinquent payments, you could have a hard time finding a job after becoming unemployed.
Bad credit is easy to rack up when unemployed because you don’t have access to a steady income. You might refinance your home, default on car payments or rack up considerable credit card debt, all of which can make it even more difficult to find work. Avoiding bad credit when unemployed is essential, so you’ll need to make a plan for keeping your credit report blemish-free.
When you first find yourself unemployed, you must work out a budget to cut down on living expenses. This might mean canceling your TiVo service or moving into a smaller apartment. Whatever the case, you need to avoid depleting your savings as you work to find a job. Determine exactly how much money you need to survive, then cut out all of the extras, such as eating in restaurants or going to the movies.
Even with your money-saving efforts, however, it might be difficult or impossible to live off your savings while you’re unemployed. To protect your credit rating, many financial advisors urge consumers to use credit for living expenses, such as utility bills, groceries and gasoline. This might seem contradictory since you’re trying to avoid bad credit, but as long as you make your minimum monthly payments, you can stay afloat until you secure a steady paycheck.
“It’s important to have cash on hand,” says financial expert Dana Leavy from Houston, Texas. “You never know when you need a new suit for a job interview, and emergencies can’t be predicted.” Although plastic might seem like the last thing you want to use, it can save you in a bind. “Just make sure you don’t go over your credit limit,” Leavy cautions. Those thirty-dollar fees can really add up.
You can also avoid bad credit while unemployed by accessing your credit report. Experts suggest that more than 50% of consumers have unchallenged mistakes on their credit reports, simply because they haven’t bothered to check. When you’re unemployed, those mistakes can put your credit rating in the toilet, making it nearly impossible to take out personal loans or apply for credit cards.
“Dispute anything that doesn’t look right,” suggests Leavy, “and make sure to clear up any outdated debts that shouldn’t be there.” If you clean up your credit report, you will have more access to cash when you need it, which is especially important when you’re unemployed. A personal loan or line of credit can save you from eviction.
You’ll also find that there is contradicting advice out there about contacting your creditors when unemployed. Some suggest that you should be proactive with the situation and contact your creditors as soon as you lose your job, while others suggest waiting until you know you’ll need to miss a payment. The best thing is to play it by ear. If you know that you can’t make your credit card payment, for example, you can contact the issuer and ask for a hardship program until you get back on your feet. Most credit card companies will help out consumers with good payment history, particularly if you can demonstrate that you’re actively searching for employment.
Don’t be afraid to be candid with creditors about your unemployment status. It might feel humiliating to discuss your deteriorating financial status, but it’s better than watching your credit rating go down the proverbial drain.