THE BLOG

Now What? Tips to Maintain Your Credit When Unemployed

01/15/2013 05:35 pm ET | Updated Mar 17, 2013

If you're unemployed, finding a new job may not be the only thing you need to be worried about. Maybe you've fallen behind on bills or your mortgage; maybe you're not able to pay down your loans as much as you could before. These additional stresses could take a toll on your credit and, even worse, hinder your ability to snag a new job. Many employers will take a look at your credit history before hiring you.

The good news: The percentage of employers who conduct credit background checks on potential hires has dropped since 2010, according to a study from the Society of Human Resource Management. States such as California, Connecticut, Hawaii, Illinois, Maryland, Oregon and Washington have banned the practice unless you're applying for certain managerial jobs or jobs that require you to work closely with money.

The bad news: Potential employers still check your credit report and if it's not in tip top shape, it can hurt your chances of getting a job -- particularly if you work in financial fields such as banking or accounting. If you live in a state where there are no restrictions on employers checking your credit report, you'll have to be extra vigilant with your finances.

Why Do Employers Check Your Credit Report?

Looking at your credit report provides an employer a sense of how responsible you are and shows if you have a habit of poor decision making when it comes to your personal life. The assumption is that if you have trouble managing your own finances, you may not be able to manage your projects and the budgets those projected are allocated successfully.

Some employers even believe that if you have credit problems, you may be more likely to steal or commit fraud.

When an employer pulls a credit report, they'll typically be looking for things like:

  • Chronic late payments
  • Liens
  • High credit utilization
  • Hard Inquiries
  • Bankruptcy

If you have negative marks on your credit report, know that most companies will allow you a chance to explain any negative items.

In the meantime, here's what you can do to maintain your credit while unemployed:

Set a budget: Now that you're no longer employed, it's important to re-adjust your budget and start cutting back on your consumption. If you continue to live your pre-unemployment lifestyle, your debt can quickly get out of hand and become increasingly difficult to pay off. Free sites like Mint.com allow you to create a budget easily and set alerts for how much you can spend in various categories such as housing and entertainment.

Pay on time and stay current on your debt: This is crucial, because on time payments accounts for approximately 30 percent of your credit score and late payments are reported to the credit bureaus every month.

Fix errors on your credit report: Obtain free copies of your credit reports at www.annualcreditreport.com and scour them for errors. Contact the appropriate credit bureau if you find any to help improve your credit standing in the eyes of future employers and lenders. Once you've done this, you may also want to consider signing up for a free credit monitoring service like the one from Credit Sesame. The service will alert you when important changes occur in your credit file, such as an address change, new credit inquiry or even a balance change. This allows you to catch potential errors and detect identity theft sooner.

Work with your creditors to create a payment plan if you won't be able to pay all your bills: If you know you won't be able to cover your bills, be proactive with your creditors. Call them and see if you can create some sort of payment plan, so you won't receive negative dings on your credit report when you can't meet your minimum payments.