Will unemployment affect my credit?

by | Nov 24, 2020

Becoming suddenly jobless is bad enough, but there is another worry for furloughed workers: will joining the ranks of the unemployed negatively affect your credit? If the pandemic has pushed you into the unemployment line, here is what it could mean for your credit.

America’s rise in unemployment

When the COVID-19 pandemic hit, so did the rise in unemployment. With retail stores shuttered and sit-down restaurants primary take-out establishments, millions of workers are finding themselves out of a job. Before we dive into the possible credit repercussions of unemployment, let’s start with the basics. 

Filing for unemployment during a pandemic

If you have lost your job as a result of the COVID-19 pandemic, you are not alone. Millions of other hard-working Americans are in the same boat, wondering when they will find a new job and how they will pay their bills in the meantime.

Unemployment qualifications vary from state-to-state. In general, workers are deemed to be unemployed when they are separated from their jobs at no fault of their own. This includes involuntary layoffs, temporary furloughs, or the closure of a place of business. For more information about unemployment benefits in your area, including how to file, visit your state’s official – ‘dot gov’ unemployment website.

CARES Act unemployment update

The CARES Act, which passed back in March of 2020, originally provided additional income for the unemployed – including an extra $600 per week for eligible workers. This amount was tacked on top of each individual’s unique state benefits. This original unemployment stimulus began in March and expired in July 2020.

Will unemployment affect my credit?

The short answer: no. However, even though the act of being on unemployment will not directly impact your credit, the financial repercussions of unemployment could affect your credit in other ways. Here are a few examples of how unemployment could indirectly impact your credit scores.

Late or missed payment

If unemployment impacts your ability to pay your bills on time, it could damage your credit. Anytime you miss or are more than 30-days or more late on a payment, you run the risk of a negative mark on your report – which will likely decrease your scores.

Increase in credit utilization

Your credit scores could also take a dip if you are forced to turn to credit cards to make ends meet. As your credit card balances rise and your credit utilization rate increases, you could see a drop in your credit scores.

Excessive new lines of credit

To be clear, opening a new line of credit isn’t necessarily bad for your scores. If used responsibly, a new line of credit could actually help you improve your credit. The problem here lies with excessive use. If you apply for several new lines of credit all at once, it could appear frivolous and may hurt your scores. With this in mind, always space out credit applications and enrollments.

How to protect your credit if you experience a job loss

If you are concerned about your credit score, it is important to act fast. Finding new employment to pay your bills is obviously the most desirable outcome. However, this may be difficult until the pandemic is no longer a factor. In the meantime, you can call your creditors and inquire about any payment assistant programs they may offer. Such programs could help you pause, defer, or even decrease your payments until you get back on your financial feet. A growing number of businesses are willing to work with their customers during this difficult time, and it can’t hurt to ask.

What to do if your credit takes a hit

If your credit does take a hit during unemployment, there are plenty of ways to turn things around. If you didn’t call your creditors before the damage, there’s no better time than now to play catch up. Talking through your unique circumstance and creating a plan with the billing companies directly is a start. Furthermore, taking steps to manage your utilization ratio, which may mean making cuts to your budget, is another way to get back on track.

Lastly, with fewer employees overseeing billing procedures and more daily online activity, your credit report could be at a higher risk for errors or even identity theft. Because of this, using software solutions like ScoreShuttle to regularly monitor your credit report has never been more important. If you do find an inaccuracy or suspect fraud on any of your 3-bureau credit reports, ScoreShuttle gives you the option to dispute it in a single click. To get started, access your $0 credit score now.

Resources: [https://www.dol.gov/coronavirus/unemployment-insurance]

Disclaimer: ScoreShuttle is not affiliated with the Department of Labor or any related government entity. Any information contained on this website is for informational purposes only. You should not rely upon or act upon any information provided without applicable legal or professional advice.

Liz Richards

Liz Richards

Credit Content Specialist

Liz Richards is a content creator specializing in credit wellness and best budgeting practices. As an in-house ScoreShuttle contributor, Liz transforms complex financial topics into easy-to-digest tips that consumers can use to manage their credit and financial worthiness.

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