Can Unemployment Affect Your Credit Score?
As the unemployment system is currently a lifeline for millions of Americans as a result of the virus, it can be incredibly stressful to figure out how to pay the bills.
Putting down expenses on credit cards is one-way people try to make payments to their bills on time, but with the right preparation, there are ways to maintain your score while you’re out of work.
While unemployment may impact your income, it is possible with the right steps to maintain your credit score.
Rest assured, filing for unemployment does not affect your credit score as credit bureaus and lenders can not see whether you’re on unemployment when they pull your credit report.
Your credit report reflects how you managed to borrow and repay in the past.
This includes the records of loans and credit cards you’ve opened, a record of your payment history, records of certain legal events relayed to debt, and any records of debts you’ve failed to pay.
This then excludes information about your income, bank balances, or assets so no record of employment status.
However, while filing for unemployment may not directly impact your score, not having a job could bring your credit down in other ways.
If you’re increasing the spending on some of your credit cards in order to pay for bills or essentials, it may impact your score as it can raise a red flag to creditors that you’re struggling to manage your debt and paying bills.
You may be earning less when filing for unemployment so it’s likely that adjustments with your spending need to be made to accommodate your loss of income.
One way people adjust to their loss of income is to put expenses on their credit cards, but doing that can lead to debt and can damage your credit score.
However, according to CNBC, making on-time payments is the most important factor in your score.
Missing payments because you’re earning less, can negatively impact your score.
Making your minimum payment is the best way to maintain your score and if you can’t manage to do that right now, try discussing with your card issuer if they’re offering any assistance programs currently.
Some cards are even holding off on charging for late fees. “Right now, credit counselors say most credit card companies are allowing one-to-three-months deferment, no string attached.”
Also, the CARES Act created the “covered major disaster period,” where creditors aren’t allowed to “submit negative credit reports if they agree to let you defer payments due to a virus related reason until January 31st.”
Speaking with your credit card issuer can help you prepare for those minimum payments.
It’s important to go over your credit as it can affect your ability to get loans or other forms of credit in the future.
As well as checking to see if you can cover the monthly payments if you plan to apply for new credit while unemployed.
While filing for unemployment may not have a direct impact, your lack of income will make it more challenging to get new credit as well.
According to Experian, “Along with checking your credit, prospective lenders will often ask how much you make and where you work when considering you for a loan.”
Continuing to make those minimum payments as much as possible can protect you in the long term.
Expedia also provides another useful tip stating, “Checking your credit regularly can give you peace of mind and help you understand what is going on with your credit.”
If you’re interested in keeping a healthy credit score, it’s important to keep in mind your basic needs and consider taking the necessary steps to help limit the damage to your credit score.
Sources:
https://www.cnbc.com/select/does-unemployment-affect-credit-score/
https://www.earnest.com/blog/does-filing-for-unemployment-affect-your-credit/
https://www.experian.com/blogs/ask-experian/does-being-unemployed-hurt-your-credit-scores/
https://www.freedomdebtrelief.com/blog/unemployed-heres-how-to-keep-managing-your-credit-card-debt/