How job-seekers should manage their credit

People looking for work actually have to juggle two major jobs at once -- finding employment and keeping themselves financially afloat. Those are big balls to juggle when compared to the relative luxury of being an employee holding onto a job these days.

One big thing to focus on during your phase of unemployment is managing your credit wisely. Ken Lin, CEO of the new credit-score tracking company CreditKarma, offered some advice about that topic on the blog LivingAlmostLarge. While I agree with some of his tips, others I would totally stay away from.

Lin's first tip is finding out what credit is available to you. One of his suggestions: "If you have a home, you should research the amount of equity you have in your home and consider opening a home equity line of credit."

That's a possible step to take before you lose your job, but not after you've lost it. Why? You most likely won't qualify if you don't have a job, especially during these times when skittish lenders often aren't lending to people who are still employed. And even if you do qualify, expect to be charged a whopping interest rate. Many financial experts say a HELOC is the last of the last resorts.

First thing first, cut expenses like premium cable, lattes, filet mignon, etc. Then the next step is to go into your rainy-day savings. Only then should a HELOC be a possibility, but just for necessities, not the "wants" like vacations and dinners out. Here's a Bankrate story that covers this in more detail -- it's from 2005, but the advice is still relevant today.
Lin's second tip is to read pre-approved credit card offers you get very carefully before accepting. "While unemployed, you'll want to make sure any new credit cards you apply for don't have annual fees or high APRs [because] these fees can really add up," he writes. Precisely -- which is one reason why you don't want to take on any new credit cards. Extra fees and higher interest rates are not things you want to take on right now, much less the temptation of an extra credit card in your wallet. More card companies are reducing card limits and hiking up interest rates across the board, so the chances of you finding a good card deal anyway are slimmer than ever. At least one good thing about this credit crunch is that fewer pre-approved card limits are being sent out in the mail, meaning less temptation to charge it up.

I do agree with his third tip about monitoring your credit score -- getting your free credit report from all three credit bureaus via every year is a must-do, regardless of your financial situation. This is also the area where Lin plugs his company, so I checked out CreditKarma and got my suggested credit score for free.

The Credit Simulator he mentions in his blog post is noteworthy, as it shows ways your credit score could go up and down. It is an interesting way to learn how various credit situations could affect your score (although I am a bit skeptical after the Simulator showed my good credit score remained the same even if I was 90 days late in paying my monthly card bill).

Lin's last tip is a good one, and the one I would follow first after a job loss: Use a personal-finance management tool to track where the money is going. He mentions websites like Quicken, Geezeo and Wesabe (I would also add to the list) that offer great -- and free -- tools to help you keep a budget and cut expenses. Start there first rather than taking on a HELOC or extra credit cards to spend more than you can afford.

My other recommendation is to read this detailed story from Bankrate about damage control to your credit cards -- and simply just leave the cards in your wallet for now while you focus on finding that next job.
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