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Employment Status Indirectly Affects Credit Score

Posted on October 21, 2011

While 60% of respondents to a Visa Inc survey were technically wrong when they said employment is used to calculate credit scores, they weren’t that off base. Employment status can have an impact on your credit score, even though it’s not directly included in your score.

Consider the things that do affect your credit score: how you pay your bills, the amount of debt you have, the length of time you’ve had credit, the types of accounts you have, and the number of times you’ve applied for credit. Your employment history directly impacts several of those factors.

Your job affects how you pay your bills.

Whether you have a job – and how much that job pays – impacts your ability to pay your bills on time. If you’re unemployed or your job doesn’t have a great salary, that can keep you from paying your bills on time. Payment history is 35% of your credit score and missing payments has a detrimental affect on your credit score. On the other hand, consistent employment and a good salary enable you to pay your bills on time every month and possibly in full.

Having a job lets you keep your debt levels low.

If you’re currently unemployed, that employment status can affect the amount of debt you have, a factor that’s 30% of your credit score. Unemployment benefits, if you receive them, may not be enough to meet your monthly household expenses. If you rely on a credit card to make ends meet, you’re increasing your level of debt each month. The higher your balances rise, the more your credit score falls.

On the flip side, having a job can give you the ability to pay off a good chunk of what you’ve borrowed, keeping your credit utilization at a level that doesn’t affect your credit score. Sometimes, though, the opposite happens and people drive up their debt because they take for granted that their employment status will help them pay it off.

A job lets you qualify for a variety of accounts.

The types of accounts you have is just 10% of your credit score, but it can make a difference. Depending on the type of job you have and the amount of money you make, you may only qualify for certain types of accounts, e.g. credit cards. So, your credit score will lack the extra points that shows you have experience managing all types of accounts. With the right job and the right income, you can qualify for a mortgage. That can boost your credit score when it comes to the types of credit you have.

It’s difficult to qualify for a mortgage with certain jobs. Contractors and self-employed workers often have this problem because they can’t document their income as easily. So, that type of employment status can hold you back from getting a mortgage and gaining the credit score points in that area.

It’s true that credit scorers don’t include your employment status in your credit score, but that doesn’t mean your job doesn’t have an effect on your score. Don’t rely on a good job to build a good credit score. It’s still up to you to demonstrate the credit habits that boost your credit score.

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