Does Filing for Unemployment Affect Your Credit Score?

Written by Kim PinnelliUpdated: 5th Apr 2022
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Millions of people either lost their job or had hours cut during the pandemic. For many, the saga continues.

Fortunately, unemployment benefits have been extended and available for most, including an additional federal bonus to help during these difficult times.

But does filing unemployment hurt your credit score?

Does Filing for Unemployment Affect Your Credit Score?

Fortunately, losing your job doesn’t affect your credit score, nor does filing for unemployment. If anything, it can help your credit score since you’ll have money to pay your bills.

Without it, you could fall behind on your debts, which can ruin even the best credit score.

Is Filing for Unemployment Bad for Your Credit?

Filing for unemployment doesn’t show up on your credit report. Instead, focus on the factors that could affect your credit score that often go along with unemployment.

Threats to Your Credit Score

#1. Missing a Payment

If there’s one thing you do while you’re unemployed, pay your bills on time. IF you can’t, get in touch with your creditors right away.

Don’t ignore your payments. A late payment can ruin even the best credit score. Your payment history makes up the largest part of your credit score (35%).

If you can’t make your payments, your lender may have options including payment arrangements or payment deferral.

#2. Defaulting on a Loan

If you continue missing payments, you’ll eventually default on a loan. Lenders only hold onto the loan for so long (usually 120 days past the due date).

If they can’t collect the payments from you, they’ll charge it off, which means sell it to a collection agency for pennies on the dollar.

This doesn’t mean you get off the hook, though. If anything, it’s worse because now you have a charged-off account on your credit report and a collection.

#3. Overspending

With little money coming in (unemployment is only a percentage of your income), you may find it harder to make ends meet.

If you use credit cards to pay your bills and you spend beyond your means, you end up in a vicious cycle.

If you can’t pay your bills, you have late payments, which hurt your credit score. The higher credit card balances also increase your credit utilization rate (outstanding debt vs your credit line), which also hurts your credit score.

If you get to where you can’t pay your bills, you may default on your credit card, which is like the nail in the coffin on your credit score.

Can Credit Bureaus See if You Filed for Unemployment?

Credit bureaus do not know if you file for unemployment. They know your last place of employment, and they’ll know your new employer when you find a job, but they don’t have access to your unemployment information.

Will Lenders Know I Am Unemployed?

Lenders will know your unemployed eventually. You must disclose your employment information, and if you don’t have a job, you have to tell them.

Most lenders won’t qualify you for a loan based on unemployment income since it’s not permanent income, despite the extensions, it’s received throughout the last year of the pandemic.

Tips to Get Through Unemployment

If you’re unemployed, don’t ruin your credit. It’s tempting to just throw your hands in the air and figure all hope is lost, but it’s not.

You have control of your credit and income. Take what control you have and make the most of it.

Here are a few tips to get you through:

#1. Live Below Your Means

It’s not fun, but you must adjust your budget for now. Life changed for most people – it’s okay to sacrifice. Just keep telling yourself this isn’t forever.

But for the time being, knock out expenses you don’t need right now (subscriptions, gym memberships, even cable subscriptions), and live well below the income you bring in.

You’ll be grateful you did if an emergency occurs. If you max yourself out, you don’t stand a chance covering the emergency, which means more credit card debt or loan defaults that hurt your credit even more.

#2. Stick to a Strict Budget

Even if you hate budgeting, it’s crucial now. Set up a strict budget and accountability to stick to it. Leave room for some fun, or you’ll go crazy but be as strict as you can with your budget.

>> More: Best Budgeting Apps

#3. Monitor Your Finances

Keep a close eye on your finances. Don’t assume you received your unemployment direct deposit – check.

Look through your checking account every few days and record all money spent. If you splurged or overspent, don’t berate yourself, but make yourself aware and cut back elsewhere.

If you notice you’re struggling to make ends meet, revisit your budget and see where else you can cut back.

>> More: Best Credit Monitoring Services

#4. Ask Your Friends and Family for Help

Don’t be embarrassed to ask for help. Millions of people are in a similar situation. Friends and family probably want to help but don’t want to offend you.

Break the ice and ask first. You’ll be glad you did when you can make ends meet.

#5. Do Not Give Up

The pandemic won’t last forever, and neither will the unemployment rates. As we continue getting back to ‘normal’ more jobs will open up.

Meanwhile, see what else you can do, whether you take on a part-time job, participate in the gig sharing economy (like Uber or Instacart) or even start your own freelance gig from home. Every dollar counts and can be one step closer to financial freedom.

>> More: Best Ways to Make an Extra $1,000 a Month

Bottom Line: Does Filing for Unemployment Affect Your Credit Score?

Don’t worry about the direct effects of unemployment on your credit score because there aren’t any. The indirect effects, though, can be devastating if you aren’t careful.

Be honest with yourself about the situation. Determine what you can and can’t afford and never be afraid to ask for help from your lenders, family, or friends. We’re all in this together.

More Credit Resources:

Kim Pinnelli
Kim Pinnelli

Kim Pinnelli is a Senior Writer, Editor, & Product Analyst with a Bachelor’s Degree in Finance from the University of Illinois at Chicago. She has been a professional financial writer for over 15 years, and has appeared in a myriad of industry leading financial media outlets. Leveraging her personal experience, Kim is committed to helping people take charge of their personal finances and make simple financial decisions.