Record-high unemployment since the Great Depression is worrying for people looking to buy a home. And it’s true that it’s very difficult to buy a home while unemployed, since lenders are are looking for stable income. Unemployment income is considered temporary income, which lenders aren’t going to look at. Even once you find a job again, lenders typically want two years of continuous employment. Gaps in employment older than two years don’t impact your chances of lending negatively, though, so that won’t be a concern in a long run.
Another problem is that lack of income could put a strain on your credit score. While you will eventually become employed again, changes to your credit score can be much harder to erase. In order to maximize your chances of getting a loan in the future, you should do as much as you can, starting now, to keep your credit score intact. Always make minimum payments if possible. Ask your landlord and credit companies about other payment plans, deferment, or forbearance. Cut back on unnecessary spending. The good news is that even if your credit score does take a dive, once you’ve settled the debts and start to rebuild your credit, it shouldn’t take too long to get your credit score back up — roughly six months to year, meaning you may have already recovered your credit before lenders will consider your employment to be stable.
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Any time your credit report is reviewed, a credit inquiry is automatically added to your report. Your personal credit report lists all these inquiries for two years. There are two main types of credit inquiries: a hard inquiry, also called a hard pull, and a soft inquiry or soft pull. There are also personal credit inquiries.
Applying for credit or doing something that requires a credit check, such as applying for phone service, renting, or possibly taking a job, triggers a hard pull. Establishing business credit for the first time will do this. A hard inquiry reduces your credit score by up to five points, albeit usually for a short time. Sometimes multiple inquiries within a short period, such as looking for the best rates for auto insurance or a mortgage over 30 days, counts as only a single hard inquiry. Be cautious about multiple hard pulls in a short time, though. Lenders can see hard inquiries on your report and tend to interpret this behavior as high risk.
When you receive a pre-approved credit offer, chances are there was a soft inquiry on your credit report. Businesses use these to know your credit score for promotional information, as do banks and lenders to review your account to see if you qualify for new offers. These usually happen without your knowledge, though you can see them on your personal credit score. Fortunately, others cannot see them and they have no effect on your credit score. In addition, although applying for rent usually triggers a hard pull, renters can sometimes request a soft pull themselves to be sent to their landlord to avoid a hard pull. You can call us for more information about requesting a soft pull as a renter.
A personal credit inquiry is how you see all the information about your credit report. Your credit score and all inquiries, hard and soft, are visible to you at any time, and you can request your report for free once per 12 months at https://www.annualcreditreport.com/index.action. This is a good idea before applying for credit and also periodically to make sure it’s accurate and up to date. Visit the credit reporting agency’s website if you encounter an error.