Our lives are intertwined with employment, because money dictates so much of how people participate in society. And where do you get money? Usually, your job. Your job may determine where you live, how you socialize, what you wear and certainly how much money you can spend on all these things.
As much as it’s wrapped up in most facets of your day-to-day experiences, your job isn’t everything. For example, your job and how much you’re paid for it have no direct impact on your credit score, because income isn’t reported to credit bureaus and, as a result, isn’t on credit reports.
That’s not to say your job has no influence on your credit — indirectly, it absolutely does — but having steady work, bringing home a fat paycheck or being unemployed are not themselves factors in your credit score.
But what about those indirect ways? When you apply for a credit card, you’re often asked for your annual income. That’s because your income is factored into the credit limit that the credit card company decides to extend to you. If you’re a social worker making only $20,000 a year, you likely won’t be extended a $20,000 line of credit like a corporate attorney with a $200,000 a year salary would. This can have an effect on your credit when it comes to your spending in relation to your credit limits — your credit utilization, a major credit scoring factor. If you regularly max out your credit card with a $1,000 limit, that can ding your credit score. It’s best to keep your credit card balances to 30% or less of your limits — and 10% or less is the ideal.
People with plenty of money can and do have bad credit. And you can make minimum wage and have good credit. It really comes down to how you manage your finances, not what your means are, but yes, it’s easier to have good credit when you have more money. To say you can have good credit while unemployed is true, but it can be an incredible challenge, because that would mean you’re able to pay all your bills while making no money. If you have savings or someone to support you financially, it’s a possibility. Unfortunately, for many people, unemployment or underemployment often leads to debt problems that damage their credit for years.
No matter how much money you make, it won’t help your credit unless you practice good habits: Make payments on time, keep your debt levels low, avoid closing old accounts and apply for new credit sparingly. If you’re concerned about how a job change may affect your credit standing, it’s a good idea to keep an eye on it as you go through the transition. You can do that on Credit.com, where you can get two credit scores for free every month.
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