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Does Unemployment Affect Your Credit Score?

Rohini Mohan Jan 13, 2019
Losing a job is never easy, and the current state of the market does not make finding another one any easier. Find out whether unemployment will affect your credit score or not, through this information.
As of September 2018, the unemployment rate in the US declined to 3.7 percent.

Unemployment and Credit Score

Credit reports do not show whether an unemployment filing or claim has been made. What the credit report does show is your credit and debt history, bankruptcy claims, tax liens, and civil judgments, if any.
Therefore, being unemployed in it itself does not directly affect your credit score or history, if you're filing for unemployment. It will also not affect the credit score if you have some other source of income, or find a job almost immediately.
Lack of income due to unemployment will indirectly affect your credit score. Absence of stable job and regular income would make it hard to pay off monthly bills and past debts, and be recorded unfavorably in your credit report. This will end up affecting your credit score and creditworthiness.
On the other hand, even though credit bureaus will notice a fall or halt in your income, that won't affect your credit score if you can somehow manage to pay your dues and bills on time. Piling up credit balance and missing on credit card payments, mortgage or loans, are some detrimental credit-related behavior that will adversely affect your credit score.
If you are considering to apply for unemployment benefits, remember that benefits you receive are counted as 'wage income' and are taxable. Applying for a loan or mortgage while unemployed, would be declined, as the income being received at the time would not be enough for a risk-free mortgage.

Tips to Maintain Your Credit During Unemployment

If you anticipate a long term of unemployment after laid-off, ask creditors to reduce the amount you're required to pay monthly, request your bills to be held back (deferment), so that you can pay them when employed.
Since the State provides unemployment benefits only for 26 weeks, it would be prudent for those who are still employed to start an emergency fund that is maintained every month.
This fund should comprise your usual monthly payments and general expenses, so that, in case you do lose your job in the future, and once the 26-week benefits are availed, you still have some savings dedicated specifically for paying off your debts and bills, apart from your own expenses.
Try to avoid making any further credit charges during your course of unemployment. Instead, try to reduce your current expenses, and also avoid incurring new debts.
The State Unemployment Handbook allows its applicants to earn up to half of their weekly unemployment benefit check through part-time jobs. So, doing a part-time job can help you pay off a part of your bills on time, because late payments affect the credit score and the credibility of the card owner.