Does Unemployment Affect My Credit?

As of June 18, the U.S. Department of Labor reported that over 45 million people have filed for unemployment during the COVID-19 pandemic. With these tough economic times, it’s normal that you may feel uncertain about your household finances and your long-term credit health. You can get through this temporary setback by understanding how unemployment could affect your credit and what you can do to protect it.

Unemployment doesn’t affect your credit scores

If you file for unemployment benefits, there is no direct impact to your credit scores. Credit scores are calculated using certain factors: payment history, how much available credit you're using (called credit utilization), length of credit history, number of credit accounts and more.

Even if you’re unemployed, you may still see previous employers listed on your credit report. This may happen if you listed your employer on a credit application and that particular lender reported the information to the credit reporting agencies. Previous employers listed on your report also don't factor into your credit scores.

Unemployment can affect your score indirectly

Unemployment benefits may only cover a portion of what your previous paycheck did. This means you may have less money to pay bills and loans. In fact, wave nine of our Consumer Financial Hardship Study shows those who have lost their job due to COVID-19 will be short an average of $1004.50 to pay bills and loans. However, if you miss payments or use a lot of your available credit to get by, your credit score could take a hit. Payment history and credit utilization are two of the most influential factors in your credit score.

Protect your credit health during unemployment

Dealing with job loss is hard on its own, and thinking about your credit during this time can feel overwhelming. But you do have options. Start by talking to your lender if you’re struggling to pay bills. Ask if they offer financial accommodations like forbearance plans or late payment forgiveness. More than a third of people who have lost their jobs have received financial accommodations from their lenders, so it’s more common than you may think. Right now many companies are offering financial help due to the pandemic, but many do so no matter the times.

You can also review your spending and create a budget that matches your current reality. Here’s how people who have lost their jobs are working to manage their finances, according to our wave nine study:

• 51% have cut back on eating out and entertainment
• 40% have canceled subscriptions
• 27% have canceled or reduced digital services like phone, cable, TV and/or internet

Remember, unemployment is a temporary challenge that won’t directly impact your credit. You can get through it by taking it one step at a time and making healthy financial choices. Talk to your lenders and use the resources available to you. This will help protect your credit health until you find another job and are ready to start spending more freely again.