Does Unemployment Affect Your Credit Score? All You Need to Know

does unemployment affect your credit score
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Does Unemployment Affect Your Credit Score?

A credit score is a numerical value that shows your creditworthiness based on credit reports sourced by different credit bureaus.   When anybody applies for a loan, your creditors must check your credit score to check your loan payback capacity. 

Undoubtedly, Unemployment can cause great emotional and financial stress. People not only worry about managing their routine financial matters but also worry about their credit scores. There is a common notion that filing for Unemployment can affect your credit score. 

Let me tell you that there are several factors that affect your credit score, but Unemployment doesn’t directly impact your credit score. According to a survey, more than thirty-six million people filed for unemployment compensation due to this corona pandemic. Filling for Unemployment will not appear on your credit report, so it will not affect your credit score. 

In fact, Credit bureaus and agencies cannot see the variation in your income, so filling for Unemployment doesn’t affect your credit score. There is another side of the picture that Unemployment can affect your credit score indirectly.

How Does Unemployment Affect Your Credit Score Indirectly?

Loss of a permanent source of income can lead you towards certain situations or circumstances that impact your credit score. Here are some examples.

  • Payment of utility bills is a real problem when you have no job. Usually, people pay their bills via credit card. If they continuously pay their bills through credit cards, then there are chances of exceeding their credit limit. Maxed-out credit limits usually indicate risky borrowers, so High credit utilization will down your credit score.
  • If you are unemployed or don’t have any other source of income, then paying your debts can be problematic. Deferred loan installments badly impact your credit history as credit history is an important part of your credit report. Even one miss payment has a huge impact on credit score. If you have savings to pay bills and loan installments, then you can save your credit score.
  • Moreover, utility bill payment is not being mentioned on credit reports so that you can make late payments, but several missed bills can have an impact.
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During Unemployment, if you apply for a new credit card, then you have to face a hard inquiry.

  • Every new credit application will impact your credit score as it stays on your credit history for two years. Usually, lenders think that you are poor in managing your financials so that why applying for new credit has an impact o your credit score.
  • Moreover, when you are unemployed, then it is hard to qualify for a home loan, too, because your lenders have doubts about your payback capacity.  You have to understand that creditors or lenders are not interested in your employment status; actually, they are interested in their debt payback. You must have a steady income stream to get any type of loan. So Unemployment indirectly impacts your credit score.

What Can You Do to Keep Your Credit Score Healthy During Unemployment?

When you are taking different measures to combat financial distress, then keeping your credit score healthy is another tough task.

  • If you want to keep your credit score healthy and you can’t make your minimum payments due to Unemployment, then you can take benefit from any financial assistance program. Moreover it’ is in your best interest to accept any income boost you such as Unemployment benefits. Such a type of income boost can help you to regain financial stability in this crucial period. Moreover, you can avoid missed or late loan payments.
  • Moreover, avoid applying for any additional credit card whether you have a backup to pay. If you think it is necessary, then instead of applying, make a budget to meet expenses and avoid unnecessary expenses.
  • Try to pay your bills or any loan installment on time to keep your credit history clear. Lenders always look at your credit history to judge your paying back capacity. Any deferred or missed payment has a huge impact on your credit history.

Final Thoughts 

Checkout credit fix guy , they offer a lot of knowledge when it come to helping people boost credit scores and repairing .I hope now you have a clear answer to the question; does Unemployment affect your credit score? No, Unemployment does not have any direct impact on your credit score, but it may have an indirect effect by leading you towards unhealthy credit score situations. So it is crucial to take measures to keep your credit score healthy whether you are employed or unemployed.

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Also see:

Cheap Credit Repair companies that actually work – Top List

Why is Credit Score Important and Your Credit Rating Matter?

HOW OFTEN IS FICO SCORE UPDATED? Checking Your FICO Score?

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