How Changing Jobs May Impact Your Credit Score

Contrary to popular belief, changing jobs does not directly affect your credit score. Your employment history is not a factor used in credit scoring models, but it can indirectly influence your financial life.

1. Lender Stability Checks: When you apply for a major loan, such as a mortgage or auto loan, lenders scrutinize your employment history. A recent job change can be a red flag, as they prioritize stable, predictable income.
2. Income Verification Challenges: A new role, especially if it includes a probationary period or is commission-based, can complicate the income verification process. Lenders need to feel confident in your ability to make future payments.
3. Risk Assessment: From a lender's perspective, a short tenure at a new company, even with a higher salary, can signify risk. This perception can influence their decision to extend credit.
4. Impact on Loan Terms: The perceived risk associated with a new job could lead to a loan denial or, more commonly, an offer with less favorable terms, like a higher interest rate.
5. The Indirect Credit Score Connection: While a lender's decision doesn't alter your score, the consequences might. Multiple hard inquiries from shopping for credit after a denial, or taking on high-interest debt that's difficult to manage, can eventually lower your score.

How Much Will Changing Jobs Affect Your Credit Score?

While changing your job doesn't directly impact your credit score, certain related financial decisions can. Here are a few factors to keep in mind during your career transition.

• Indirect Effects. Your employment status is not a direct factor in credit scoring models. However, actions like moving or changes in income can indirectly influence your score by affecting your payment history or credit utilization.
• Income Fluctuation. A significant change in your income can alter your debt-to-income ratio, which lenders consider. This may affect your ability to secure new credit, potentially leading to hard inquiries that temporarily lower your score.

How You Can Avoid Changing Jobs Affecting Your Credit Score

Avoid Income Gaps

Aim to secure your next job before leaving your current one. This ensures a steady income stream, allowing you to make all debt payments on time. Consistent, on-time payments are the most significant factor in maintaining a strong and stable credit score during a transition.

Postpone Major Credit Applications

If you anticipate needing a large loan for a car or home, try to wait. Lenders prefer to see a stable employment history. Applying after you’ve been in your new role for several months will increase your chances of approval and favorable terms.

Keep Credit Balances Low

If you experience a temporary dip in income between jobs, avoid relying heavily on credit cards. A high credit utilization ratio can lower your score. Keeping your balances well below your credit limits demonstrates responsible financial management to creditors, even during periods of change.

Choose the Right Card to Changing Jobs

No matter your current standing, it is always possible to improve your credit score through consistent, positive financial habits. Taking deliberate steps can lead to meaningful changes within just a few months, strengthening your overall financial health.

• Monitor your credit reports. Obtain free reports from all three major bureaus to identify and dispute any inaccuracies or signs of identity theft that could be hurting your score.
• Set up automatic payments. Your payment history is the most significant factor in your score, so ensuring bills are always paid on time is a critical step.
• Lower your credit utilization. Aim to use less than 30% of your available credit by paying down balances or requesting a credit limit increase on existing accounts.
• Become an authorized user. Being added to a credit card account with a long history of on-time payments and low utilization can help boost your own credit profile.
• Diversify your credit mix. Lenders like to see that you can responsibly manage different types of credit, such as revolving credit cards and installment loans.
• Limit hard inquiries. Avoid applying for too many new lines of credit in a short period, as each application can temporarily lower your score.

The Bottom Line

While changing jobs doesn't directly lower your credit score, any resulting income instability can make it harder to pay bills on time or qualify for new loans from lenders.

Frequently Asked Questions

Will my credit score drop if I'm unemployed between jobs?

Unemployment itself doesn't directly lower your score. However, missing payments on bills or loans due to a temporary loss of income will negatively impact it.

Do lenders check my employment history for new credit?

Yes, lenders verify your employment and income to assess your ability to repay debt. A stable job history can improve your chances of loan approval.

Should I tell my credit card companies I changed jobs?

It's a good practice to update your employment information with creditors. This helps them understand your current financial situation, especially if your income has changed.