Does Unemployment Affect Your Credit Score?
- Applying for and collecting unemployment compensation won’t negatively impact your credit score or credit reports.
- Not paying your bills on time, borrowing more money, and opening new credit accounts can lower your credit score.
- There are many ways to shield your credit from harm during unemployment.
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When you lose your job, you’ve got a lot on your mind. It’s natural to be concerned about immediate practical matters, like paying your bills and qualifying for unemployment benefits. You may also be wondering about your future ability to get credit and whether unemployment affects your credit score.
Unemployment insurance doesn’t affect your credit score or credit report, but the experience of being unemployed might. We’ll explain how to protect your credit when you’re in between jobs.
Filing for unemployment does not affect your credit score
Unemployment, earnings and wealth aren’t credit score factors, and they don’t appear in your free credit report from each credit bureau (Experian, TransUnion, and Equifax).
Unemployment doesn't appear on your credit report, and it’s not a public record. Your credit reports may list previous employers, but that’s usually because in the past you told creditors where you work, how much you earn, or other details they asked for. When you provide that information, the creditor may report it to the credit bureaus. Even if they do, it’s informational and has no bearing on your creditworthiness. Your credit report is unlikely to show your entire work history, and it isn’t proof of whether you still work for your most recent employer.
In fact, if you file for unemployment or experience a change in income, your credit card issuers can’t find out unless you tell them or grant special permission (very uncommon).
Factors that can affect your credit score
Curious about which factors do impact your credit scores? They are:
Your existing debts
Your payment history
How much of your available credit you are using
The age of your accounts
The type and number of loan accounts you have
Whether you’ve applied for new credit recently
Collections, foreclosures, bankruptcies or other significant negative events
How being unemployed can affect your credit score
Unemployment won’t have a direct negative effect on your credit score or credit reports, but there are indirect ways that being out of work can affect your credit standing.
Here are some ways that the unemployment experience can harm your credit:
Payment history is the biggest factor affecting your credit score. Living on unemployment income could leave you short on cash and unable to pay all of your bills on time. Payments that are late by 30 days or more will hurt your score. The later they are, the more they hurt.
Maxing out cards
If you have less money coming in, you may want or need to rely on credit cards for basic needs. If that happens, your credit score could suffer. Your credit utilization ratio (your credit card balances divided by your credit limits) is the second biggest factor that affects your score. The closer you are to your limits, the lower your credit score will be.
Any time you apply for credit, your score can temporarily go down. Applying for a new credit card or loan is tempting if you’re short on cash, but too many applications could send a signal that your finances are unstable.
How to protect your credit while you’re unemployed
Unemployment is a tough time. You can take a few action steps to preserve your credit score and overall credit standing during this challenging time.
Bolt down your budget
Be extra conscious of spending. Whether you have funds set aside or not, your unemployment benefit is probably less than what you were earning. Plus, it has an end date. Be very conservative and make your money stretch as far as possible.
Lower meal costs. If you cook, make more meals at home. If you don’t, hit those early bird specials and kids-eat-free days. Order bigger meals and divide them in half before you eat, taking the leftovers home for another meal.
Cut spending on wants. Anything that’s not a necessity is a luxury right now. Find optional expenses that you can cancel or delay. Spend a few minutes canceling monthly subscriptions that you can live without for now.
Sell things. If you have anything of value that you might be able to sell, go for it.
Increase income. Find ways to bring in a few bucks where you can. Maybe you can drive for a delivery service or a ridesharing app. If you’ve had an idea brewing for Etsy or DeviantArt, now’s the time to post those photos and try to get some sales.
Potential sources of cash. Make a list of ways you could get money if you had to, but don’t pull the trigger yet. Your options could be extremely costly, so keep them for a last-resort situation. For instance, find out how to take a withdrawal from your retirement account or whether you qualify for a hardship withdrawal. A hardship withdrawal is less costly than a regular early withdrawal. Note that a credit card cash advance is not a good idea if your bills exceed your income.
Communicate with creditors
Make your minimum payments if you can. If you can’t, call the lenders or creditors before your payment is late. Find out about options that may be available, such as late payment forgiveness, forbearance plans that can temporarily halt your payments, or a payment plan that’s more affordable.
Line up help
Consider getting help from a nonprofit credit counselor, preferably one referred from the National Association for Credit Counseling. This expert can help guide you through your options now, and in case your financial situation gets worse.
Sometimes the loss of the primary breadwinner’s income is an extreme financial emergency that is difficult to overcome. In that case, you might want to talk to a credible debt resolution company that knows how to negotiate with creditors.
Keep your chin up
Try not to get discouraged during this time of transition. Do the best you can with the things that are within your control. You can get through this, and you might be able to escape with minimal harm to your finances and credit.
What’s on a credit report?
A credit report is a statement that has information about your credit history and current credit situation, such as your payment history and the status of your credit accounts. Credit reports commonly include the following details:
Personal information, like your current and former names, current and former addresses, birth date, Social Security number, and phone numbers
Credit account information, including the account type (mortgage, installment, revolving, etc.), credit limit, account balance, payment history, account age, and name of the creditor
Collection accounts, if you have any
Public records, such as liens, foreclosures, bankruptcies, and judgments
Inquiries from companies that have accessed your credit report
Do credit card companies know if you are unemployed?
No, credit card issuers and credit reporting bureaus won't know that you’re unemployed unless you tell them. Changes to your income and filing for unemployment aren't seen by these parties unless you grant them specific permission.
Does an unemployment credit check affect your score?
Filing for an unemployment benefit does not require a credit check. Filing for unemployment and receiving unemployment compensation do not affect your credit score.