When out of work, you may be tempted to take the first job offered, even if you know it’s a poor fit. But if you have credit you can tap, your card could buy you a few extra weeks or months to land that perfect – and higher-paying – position.
Even if you never take the card out of your wallet, that card can help you hold out for a better job. According to a May 2016 working paper published in the National Bureau of Economics Research, if your credit card has a few thousand dollars of available credit on it, that could give you the confidence you need to say no to a D-list opportunity.
“What we’re finding is, if your back’s against the wall, if you have a large amount of debt, you use up all your credit and you’ve lost your job, you’re very likely to take a low-paying, low productivity job,” said study co-author Kyle Herkenhoff in an interview with The Wall Street Journal. But if you have enough credit available to cover a month or two of living expenses, you may be more likely to hold out for something better – even if dipping into that credit could potentially set back your finances even more.
The economists studied the credit reports and employment information of roughly 5 million consumers over eight years. They found that consumers with significant access to revolving credit were often better off in the long run.
Credit as a confidence booster
According to the study, when job seekers who were previously laid off were given credit lines that equaled at least 10 percent of their prior salaries (around $4,000 for cardholders who made at least $40,000), they took up to three weeks longer, on average, to find another job – in part because they could afford to be somewhat picky. They also ended up with better jobs, on average, the study found, and often made significantly more money.
“Conditional on finding a job, they earn more and work at more productive firms,” wrote Herkenhoff and study co-authors Gordon Phillips and Ethan Cohen-Cole in the report. Cardholders with lower or nonexistent credit limits, on the other hand, “search less thoroughly and take more accessible jobs at less productive firms.”
“The potential to borrow affects real life job search decisions,” wrote the study’s authors. “Workers know that if their buffer stock of liquid assets is depleted, they can borrow, and this affects their job search decisions even if they never borrow.”
A dangerous gamble
It’s a risky move, though, to rely on credit cards as a form of emergency savings – particularly since maxing out your cards when you’re unemployed could ruin your finances for years.
If you’re in between jobs and deciding whether to accept a job you know isn’t a good fit, think carefully about how much credit you actually have compared to your total savings. It could be a smart move to wait until you find a more satisfying or lucrative job. Chances are, you’ll have more money down the road if you wait for the right opportunity.
But if your checking account is nearly bare and you have just enough credit to tide you over in an emergency, beware. Credit card debt builds quickly when you pay only the minimum amount and roll over the balance from month to month. If you take a chance on a longer bout of unemployment and a better job doesn’t pan out, you may start wishing you had said yes when you were offered a less-than-perfect job.