Payoff - Number of Accounts or 1-2 High Balance

[Anonymous]

I'm unemployed and I fear I am not being hired due to credit score.  Score is currently 596 BUT my only "Bad" score is my debt level.  (Always have paid on time.  No delinquencies.  No bankruptcies.) 

1) Anyone familiar with the hiring process tell me if the score alone is considered, or if the fact I've always paid bills on time has any bearing on a potenital employer's view of me.

2) I came into some money that I can use to pay down some debt.  Does the number of accounts I can bring down to zero balance affect my score?  Or, is score simply based on the total amount of debt?    I can bring 5 revolving and 1 installment account to zero balance.  Or, I can pay off two larger accounts.

[JoeBJay20]

Welcome to the forums! 

In reality, the chances of you not getting a job because of your credit history are pretty slim, unless something in your reports indicates fraud.   However, that would be found in a background check.  Usually employers will pull your credit history to verify former employment.  Outside of government jobs, it's highly unlike your credit score will hurt your chances of employment.  Is the score you listed a FICO score, it seems low for a report with no delinquincies, unless you have a bunch of maxed out revolving debt.

You should visit the Credit Scoring 101 thread (http://ficoforums.myfico.com/fico/board/message?board.id=ficoscoring&thread.id=29793) thread for more info on how to improve your score.  The fastest thing you could do immediately to inprove your score is to reduce your total revolving utilization to 9% or less of your total available credit.  For a few extra points, have all cards report a $0 balance, and leave a small balance on one card. 

Message Edited by JoeBJay20 on 06-04-2009 02:18 PM

[Anonymous]

Thank you!  And, thank you for your response!

I am a little worried because I work in a specialized area of corporate finance.  You are correct in stating I have more than a little maxxed out CC debt.  According to an Equifax simulator, if I paid off 1/3 of my debt, my score would only increase 20-60 points and would still not be near 9% of available CC limits.  Don't know if this would matter to a potential employer...

The simulator allows to input a total payoff amount, but does not model what happens if you would pay off five accounts versus two big accounts.  I once heard it is better to pay off many small accounts because you have fewer minimum future payments, but I did not know if that affects a score.

[JoeBJay20]

FICO factors in your total CC utilization, so it doesn't really matter in terms of your score which cards you choose to pay down first.  Although it's not an absolute, generally people gain roughly 10 points for every 10% decrease in total utilization.  If you're trying to increase your score, paying down your CC balances below 9% is the quickest way.  As far as how you wish to pay it down, you should do what's best for your financial situation.  I know you also mentioned an installment loan.  Generally, you see score increases after you pay down 35% of the balance.  Beyond that, it's hard to say, some people have seen increases in their scores when it's paid off, others decreases, others little to no change.

[Lel]

Do you actually have evidence that your prospective employers are pulling your credit report?  It would appear as an inquiry if this were the case.

Given your line of work, it is entirely possible that red flags would be raised if your credit profile shows a lot of debt.  The reason why some employers, regardless of whether it is a government job or not, sometimes pull credit histories is because they want to be aware of anyone who might have financial problems.  A person with a lot of debt (present company excluded ) might be tempted to skim money from the company's coffers, or might be tempted to disclose information to competitors in exchange for cash.

In the case of government jobs, persons in sensitive positions are thoroughly screened to make sure that they won't be too prone to the overtures from an agent of an unfriendly government. 

[Anonymous]

Hi Lel.  Thanks for responding.  I now understand why it would matter in my case.  I guess it shows my innocence/naivete about the matter.  I just wouldn't do that kind of stuff.

Your question regarding my file being referenced is interesting.  There have been NO inquiries from any background search firm over the past few years.  The only inquiries I see are from creditors.  BUT, is it 100% certain that an inquiry would appear on my credit record if it were looked up?

[Lel]

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cuddles wrote:

Hi Lel.  Thanks for responding.  I now understand why it would matter in my case.  I guess it shows my innocence/naivete about the matter.  I just wouldn't do that kind of stuff.

Your question regarding my file being referenced is interesting.  There have been NO inquiries from any background search firm over the past few years.  The only inquiries I see are from creditors.  BUT, is it 100% certain that an inquiry would appear on my credit record if it were looked up?

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All requests for your credit report should be recorded.  You should check each credit bureau's list of inquiries, because a prospective employer might only pull from one CRA.

[MattH]

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@Anonymous wrote:

Hi Lel.  Thanks for responding.  I now understand why it would matter in my case.  I guess it shows my innocence/naivete about the matter.  I just wouldn't do that kind of stuff.

Your question regarding my file being referenced is interesting.  There have been NO inquiries from any background search firm over the past few years.  The only inquiries I see are from creditors.  BUT, is it 100% certain that an inquiry would appear on my credit record if it were looked up?

---

Several points:

1. You have a legal right to see all inquiries.  However, depending how a prospective or current employer codes an inquiry, you might only see that inquiry in a report you pull directly from the credit reporting agency itself (such as via the CRA's own website or via www.annualcreditreport.com) because inquiries not directly related to an application for credit are normally available to you and not to anybody else.  So reports pulled from myfico.com or various other monitoring services will not include what are known here as "soft inquiries."  Even the monitoring service I have from Experian themselves does not include the softs, so it really is important how you pull them if you need to see the softs.
2. I believe it is illegal for a current or prospective employer to pull your credit without your written permission in advance, so you should know who has asked for your permission.
3. Remember the golden rule that applies to any kind of background check: without exception it is much better if they learn any negative information from you before they learn it from somebody else.  If you have reason to be concerned then you need to be up front to make sure that (1) they learn it from you first and (2) they get an honest and convincing explanation of what happened and why along with the information.  In particular, if your balances only became this high because of unemployment and never were so high before you became unemployed then you should make sure that aspect is mentioned so they know your low FICO score is not typical for you but merely a consequence of your misfortune.

However, your postings suggest to me that employment background checks are hardly the only, or even the most important, issue, that faces you right now.  If you have run up enough debt from being unemployed to bring your scores to this level then your first priority right now should not be your FICO score, it should be finding ways to rapidly and radically transform your current financial situation by some combination of:

• "survival jobs" while continuing to seek a new "real job,"
• dramatic changes of lifestyle to bring expenses into line with reduced income
• conversations with a good career advisor about strategies for seeking a new job
• possibly conversations with a lawyer and/or financial advisor
• possibly conversations with friends and relatives
• etc, and for all I know you may already be doing all these things

Edited to add:

• conversations with a priest, minister, rabbi, guru, elder, or other leader in any faith tradition to which you might belong.  The spiritual aspects of unemployment can be just as important and powerful as are the practical aspects.

Whenever you are back on your feet with a good job and no debts, your top priority should be saving up emergency funds to protect yourself against future misfortune.  The traditional advice has been that most people should have enough emergency funds to cover living expenses for six months, but these days long-term unemployment is common enough that I personally believe everybody should strive to have at least 12 months worth of reserves if possible.

Message Edited by MattH on 06-14-2009 08:31 AM

[Anonymous]

Nothing to do with you getting a job, but I would pay off the 5 revolving and 1 installment, and NOT USE the 5 paid off revolving anymore.

If you are un-employed it will be easier to find a way to make 2 minimum payments compared to 7 just in case the unthinkable happens and your finances worsen even more in the future.

Good luck!

[Anonymous]

MattH, thank you for framing my situation perfectly.  (The edit regarding spiritual aspects of unemployment was much appreciated.)  And, thanks to Lel, JoeBJay, and Scorerise for your insights, as well.

I spoke with my spouse, who (unknown to me) negotiated hardship rates with our creditors and for the most part did a good job.  Except for agreeing to a lower APR BY CLOSING one of our oldest accounts that had a high balance.  So, now that's sitting out there at a rate of 6% while two active accounts are at 9%.

I'm considering paying off the closed account first because the incremental difference in interest rate is relatively small, BUT I think it would have a significant impact on my score due to the utilization effect.  Anyone have thoughts about paying off the closed account before paying off an open account with a slightly higher interest rate?

Message Edited by cuddles on 06-14-2009 07:05 PM