If you lose your job, filing for unemployment benefits can help keep cash flowing while you get back on your feet. But many people ask: Does collecting unemployment affect your credit?
Fortunately, the answer is no: filing for and collecting unemployment income does not affect credit scores directly. That said, losing your job can impact credit scores in other ways.
Why your credit score is important
Your credit score and credit report reflect your riskiness as a borrower. Lenders check your credit score before extending debt, like a personal loan, mortgage, or credit card.
If you have a good credit score, you’re more likely to be approved and get favorable interest rates. But bad credit scores may be denied or charged higher interest.
Your credit score doesn’t just impact your ability to get credit, though. Some landlords and bosses check your credit before offering an apartment or job to check your history of financial responsibility!
How unemployment affects your credit score
Your credit score is a three-digit number that numerically reflects your:
- Payment history
- Credit utilization
- Age of credit history
- New credit applications
- And credit mix
Of these, your payment history and credit utilization impact your credit score most, accounting for about 35% and 30%, respectively. Unfortunately, these two factors are also likely to be the most vulnerable when you’re collecting unemployment.
Collecting unemployment benefits doesn’t directly trash your credit. However, if your spending habits change due to having less income, your unemployment credit score may take a hit.
For instance, juggling the same bills on less money may mean you can’t or forget to pay your credit card bill. Because payment history has such as big impact on your credit score, even one missed payment can drag you down.
Paying more bills on credit can also increase your credit utilization rate, which measures how much debt you use versus how much you have available. Using more than 30% of your available credit is usually a red flag for lenders.
Applying for new credit can also affect your credit score. Each application generates a hard inquiry that can stick to your credit report for two years.
Why unemployment won’t appear on your credit report
Essentially, your credit report is a roadmap of your credit-based financial habits – but it doesn’t include every detail. For instance, your credit report includes your current and past credit use, repayment history, inquiries, and public debt information.
However, your credit report does not include your income, employment status, or account balance.
And neither credit bureaus nor card issuers can see if you’ve filed for or received unemployment income without explicit permission. (Though card issuers may request to review your accounts if they notice major changes like increased spending.)
Your unemployment credit report: why filing won’t hurt
Unemployment income serves as a lifeline to help people get through rough times. You can put the money toward buying groceries, paying bills, and making your minimum credit card payment.
Even if you rack up a little debt, collecting unemployment actually helps you protect your credit. Every dollar coming in is a buck that can go toward bills, even if you just make your minimum payments.
How to protect your unemployment credit score
While collecting unemployment does not affect your credit, reduced income and changing spending habits can.
Here’s how to protect your credit while you search for a new job.
Make payments on time
Your payment history is the most influential factor in your credit score – missing even one can drag you down. If possible, make your minimum payments on time while unemployed to prevent long-term credit damage.
Regularly check your credit score
Keeping tabs on your credit can give you peace of mind and help you track any changes that do occur. Plus, it’s a good way to spot fraud early. Tools like MoneyLion and Credit Karma can offer handy insights into your credit health.
Refrain from opening new credit accounts
Anytime you apply for new debt, the lender uses a hard credit check, which can affect your credit report. Usually, the mark goes on your credit report for two years before falling off. Fortunately, the impact on your credit score should be minimal (around five points) and recover quickly.
Another reason to avoid applying for more credit is that having more credit means you might use more credit. You don’t want to rely on credit cards more than you have to, lest you drown in high interest rates.
Ask your lender about financial assistance programs
If you’re worried about missing a payment, ask your card or loan issuer if they offer financial assistance programs. Many provide forbearance or deferment options for people in tough spots – such as when you’re collecting unemployment income.
These programs may let you make partial payments or even pause payments temporarily. While your interest will grow, you’ll have time to get back on your feet without trashing your credit score.
Does collecting unemployment affect your credit? Not exactly
Job loss is a significant life event. Even if you have unemployment income to see you through, it’s not always enough to cover your bills. By managing your money carefully, you can get through without affecting your credit score – at least too much.
But even if you do see a small dip, don’t panic: your credit score is fixable.
Can filing for unemployment hurt you?
No, filing for unemployment doesn’t hurt your credit score or show up in public records.
Can you get a credit card with no job?
While it’s possible to get a credit card with no job, you generally have to prove a source of income to qualify. (Such as a savings account or investment income.)
Does filing for unemployment hurt you?
No, filing for unemployment doesn’t hurt your credit score or your credit report.