If you’ve lost your job, you know not having a steady paycheck can make paying for essentials like groceries, gas and rent more difficult. Some people get unemployment checks, while others tap into savings accounts. Then there are those who turn to credit cards to pay for what they need.
Yet it turns out having a credit card may help you get that dream job you’ve been waiting for, at least according to a paper from the National Bureau of Economic Research (NBER).
NBER used a panel of five million TransUnion credit reports from 2001 to 2008, paired with information from the Longitudinal Employment and Household Dynamics database, to draw their conclusions. According a its working paper, job seekers use “personal credit to fund longer unemployment spells so that they can search and find better job matches” instead of accepting the first offer that comes along simply to have an income.
Remember: Your Credit Card Isn’t a Paycheck
While doing this might sound bad on the surface, using a line of credit to help pay for essentials might not be a terrible thing — assuming it’s done responsibly.
Using a credit card may help lighten the load while you’re searching for the next place to spend your 9-to-5. But this doesn’t mean you should miss any payments, since that’s generally the most important factor when it comes to your credit. You also shouldn’t max out your credit cards in the meantime. Not only does increasing the amount of debt you owe make it more challenging to pay your creditor back, it can also hurt your credit score. Debt usage is another important factor used to determine your credit score, and it is recommended that you use only 30% of your total credit limit(s), or ideally 10%, to maintain a good credit score.
Paying Back Debt
Once you have money coming in again, you’ll want to make it a goal to pay off your credit card. Doing so on time each month can benefit your credit score, especially if you pay the balance in full. By having a good credit score, you are more likely to get better terms and conditions on credit cards and qualify for better terms on loans, such as a mortgage or auto loan.
Remember, many employers look at your credit reports as part of the application process. To see where your credit currently stands, you can get your free credit report once a year from AnnualCreditReport.com. You can also keep an eye on how spending habits, like paying off your credit card debt, are affecting your credit by viewing your free credit report summary, updated every 14 days, on Credit.com.
More on Credit Cards:
- Credit.com’s Expert Credit Card Shopping Tips
- How to Get a Credit Card With Bad Credit
- An Expert Guide to Credit Cards With Rewards