Whether you’ve recently landed a new job, unfortunately lost your previous one or you’re making ends meet some other way — you might be wondering if changing jobs can affect your credit report. You may also want to know if your employment status or your income will impact your ability to borrow money.
The good news is that the UK’s three main credit reference agencies (CRAs) – Experian, Equifax and TransUnion – don’t include your job status or income when they calculate your credit score. Nor will it show your salary, job title or employment status. So, does it even matter?
Well, yes it does! While your credit report doesn’t hold information about your income and employment status (including job role changes or redundancy), lenders will often ask you for that information directly when you make an application for credit. Your creditworthiness is then established using these details alongside your credit score.
In this blog, we’re answering all of your questions on income and job status, and what they mean for your credit. Read on to find out more.
Does your salary affect your credit report?
No, your income or salary have no direct impact on your credit report. Experian, Equifax and TransUnion don’t list how much you earn on your report and therefore it doesn’t make you look better (or worse) to lenders.
You might be surprised about how detailed your credit report actually is though. A lot of information is held about you but they don’t keep everything.
Not only is your income not listed but neither is your employment, marital status, ethnicity or religion. So none of these things should impact whether you are able to get approved. This is so credit checks are fair and free from prejudice.
It also means people who have higher incomes don’t get treated differently to those who are earning less, and everyone’s reports can fairly reflect their use of credit rather than how much they earn.
How does income affect credit reports?
A big or sudden change to your regular income can indirectly impact on your credit score if you stop paying your bills and loan repayments. Although your employment status and income are hidden from your credit reports, and don’t change your credit reports, losing your income through redundancy or contract termination can have a really big impact on your life.
It’s important to know that losing your job has no impact on your creditworthiness directly. So although it’s tough to lose your job, if it does happen to you, at least knowing that it’s not recorded on your credit report should be one less thing to worry about.
If your circumstances change and you find it difficult to keep up with your regular outgoings though, you could start to miss things like phone bills, loan repayments, or your rent or mortgage. This type of activity would be reported on your credit history and can have a negative effect. Try to avoid missed payments especially, as they stay on your report for six years.
Becoming unemployed therefore isn’t the issue, it’s how you manage your finances when your situation changes that matters to your credit score.
Does not having a job affect your credit score
Beyond losing your job, your next question might be on whether not having a job at all will affect your credit score? In brief, it doesn’t. At least not directly.
Your credit report doesn’t include your employment status. However, creditors will ask for your employment information and income as part of your application. They will make a decision on your risk level by looking at your income and your expenditure. This is also known as your debt-to-income (DTI) ratio.
Your DTI ratio is the percentage of your income that goes towards your debts. To work out your DTI, just divide your total monthly recurring debts by your total monthly income. So, if you had £1,600 recurring debt payments and your income was £2,900, your DTI would be 0.55 or 55%. A good DTI to have is around 20-30%.
If your DTI is higher than 50% it could be a good idea to think about clearing some debts, especially if you are thinking about taking on any more. Your credit report isn’t affected by your DTI, but lenders may decide not to lend to you if the percentage is too high.
Unemployment could be a problem if you want to apply for credit. But the issue won’t be with your history. It will be with your affordability according to the lender. Always consider whether borrowing money is the best option for you at the time. The reason affordability is checked by lenders is to safeguard against giving more debt to people who might not be able to manage repayments.
If you’re receiving any government-funded job seeker allowances, then no need to worry about this either. But keep in mind that if you are in this situation, you could be considered as having a low income which could fall below the minimum requirement set by lenders for credit cards and loans.
Does being self-employed affect your credit?
What about if you’re self-employed? The good news is that just as getting a new job or losing your old job doesn’t show up on your report, the same is true if you’re self-employed.
Lenders like consistency though. So lending to a person who is self-employed can be seen as riskier than a salaried position. This is mainly because you may not have a long track record to prove you can uphold this style of employment. And if you do have the track record, you might have irregular income with late invoice payments from clients or some months returning larger sums than others.
If this is your situation, it’s a good idea to make sure your report is as strong as possible so that you can show your creditworthiness.
How to strengthen your credit report no matter your job status
Even though your salary and income don’t affect your credit report directly, there’s still plenty of things you can do to improve your score. At Loqbox we can help you build credit, save for your future and grow a happier, healthier relationship with money.
Improvements to your score are not guaranteed.
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