How losing a job can affect your credit score?

Losing a job is one of the most traumatic events in life, right there with divorce, jail time and the death of a spouse. Unemployment can be even more stressful if you are a family host or primary breadwinner, perhaps worse if you are a single parent or sole income provider. Losing a job will affect a large part of your life, but it will not directly affect your credit score.

What affects your credit score?

What affects your credit score?

There are five key factors that affect your credit score: payment history, debt level, credit history, types of credit accounts, and questions about your credit report.

Your work status and earnings are not factors that directly affect your credit score. In fact, your creditors and credit bureaus may not even find out that you lost your job unless you tell them.

Your credit score may be due, indirectly, to losing your job

Your credit score may be due, indirectly, to losing your job

That said, your credit score could be indirectly affected by losing your job, that is, how you deal with credit and paying your bills during your unemployment period. Here are some of the events that affect credit that can occur as a result of losing your job:

  • You fall behind on your credit card or loan payment: after you lose your job, you may not be able to stay current on all your payments, it is understandable, since you have suffered a dramatic loss of income. However, payments within 30 days are still reported to the credit bureaus and will affect your credit score. Payment history is 35% of your credit score and the biggest factor affecting your credit. The further behind you will get your bills, the more it will affect your credit score.
  • Increase your credit cards or take out new credits to help you get the hang of it: you may have lost your job, but you still have bills to pay. If you do not have enough money in savings or if no unemployment benefits are enough to cover all your bills, you can turn to credit cards or loans to make ends meet. The problem is, an increase in credit card balances and high amounts of debt can hurt your credit score – your debt level is 30% of your credit score. On top of that, the more debt you have, the higher your monthly payment can be. This will further burden your ability to make ends meet.
  • Open a few new accounts to get paid to pay your bills: Opening new accounts can hurt your credit score in two ways. First, new accounts will reduce your credit life, which is 15% of your credit score. Second, additional credit report information – 10% of your credit score – will also earn you a credit score.

Collection of medical debt, bankruptcy, foreclosure, reimbursement, tax exemption and default on student loan are other events that hurt the loans during your unemployment period. These violations of your credit are much more and much harder to recover from a late payment or a high credit card.

Maintain a job search credit score

Maintain a job search credit score

It is important to keep your credit score intact even though you have lost your business. Many employers perform credit checks as part of the hiring process. Amazing credit history could cost you a potential job. You will face a dilemma faced by many other Americans: it takes work to pay your bills and improve your credit, but you still don’t have a job because of a bad credit history.

One in four unemployed people say a potential employer has asked for a credit check in the job application process, according to a Demos survey.

In the same survey, one in ten said they were not hired because of information about their credit report.

Obviously, the longer you are unemployed, the harder it will be to live off of your spouse’s unemployment, savings, or sole income. Do your best to maintain your credit standing so that they will not land on your next job.

How credit cards use the highest rate

The original rate is the interest rate that banks charge to their most favorable consumers. To get a basic credit course, you must have an excellent credit score.

The U.S. master rate is the national base rate published in the Wall Street Journal, which is calculated based on the highest rates from the largest banks in the country. The U.S. top rate is typically about 3% higher than the federal funds rate and is available on the Wall Street Journal website.

How Prime Rate Affects Your Credit Card

credit score

Many credit cards base their variable interest rates at a base rate. A variable interest rate is one that changes based on another interest rate.

For example, credit card APR may be the primary rate plus 13%. The interest rate that the credit card issuer places on top of the main course is known as “spread.” In our example, the “spread” is 13%. If the base rate is 3.25%, the current APR on the variable rate card would be 16.25%. This means that the primary rate has a direct, but usually small, impact on the financing costs you pay on your credit card when you are able to make the balance. The higher the base rate, the more you will pay to get back to credit card status. You can avoid paying interest at all by paying your credit card amount every month.

If your credit card has a variable interest rate based on the base rate, the credit card interest rate will monitor the movement of the master rate.

If the primary rate goes up, you can expect the interest rate on credit cards to rise soon. On the other hand, if the primary rate goes down, the interest rate on credit cards should decrease.

Credit card issuers do not have to notify you about interest rate changes in advance if you have a variable interest rate.

You can keep track of potential interest rate changes by paying attention to interest rate news (interest rate changes are usually major news) or by looking at rates published in the Wall Street Journal. Your current interest rate is posted on your credit card statement. Keep a close eye on your statement to capture any changes in interest rates due to changes in the principal.

What if the Prime Rate goes up?

credit score

When the primary rate increases, your interest rate will increase. To reduce the impact of increased financing costs, you can pay off your balance faster. Transferring your balance to a credit card with an introductory rate of 0% is another option. Finally, if you kept the card in good standing and have a good credit rating, the credit card issuer may be willing to lower the interest rate if you asked the question nicely.

Does your credit card use a premium rate?

Does your credit card use a premium rate?

Part of your credit card agreement called “How we calculate and set rates” will tell you how your credit card company determines your rate and how your credit card level will adjust if the base rate adjusts. If your credit card interest rate is based on a base rate, you will see a section with a language like “APR will differ from the market based on Prime Rate.”