If you’re concerned that filing for unemployment benefits will hurt your credit score, don’t worry – this income is not reported to the credit bureaus. However, unemployment can lead to missed payments or increased credit card use, both of which can hurt your credit score. See what factors determine your score and learn how you can protect your credit until you get back on your feet.
Why your credit score is important
Often, lenders will check your credit score when you apply for a credit card or loan. This number determines whether and how much money you can borrow. It also affects your interest rate and repayment terms. In addition to your credit score, lenders often consider credit history, income and other factors when determining how much someone can borrow and the interest rate you may qualify for.
VantageScore ® and FICO ® are the two most common credit scoring systems and typically score consumers between 300 and 850. The higher the score, the better. There are several factors that go into calculating your credit score; these factors vary from one credit scoring system to another.
The six key factors that make up your VantageScore ® credit score are
Payment history
Credit history
Credit Usage
Total Balance
Recent Credit
Remaining Amount
The five key factors that make up your FICO ® credit score are
Payment History
Credit utilization
Length of credit history
New credit
Credit Mix
Payment history and credit utilization are two of the most important factors that make up your credit score – and they can be most vulnerable when experiencing a job loss. If you are unable to pay your bills or use more than 30% of your credit limit, your credit score may be affected.
Unemployment does not appear on your credit report
Your credit report is an overview of your financial situation, but remember that it does not include every detail of your financial life.
What is included in a credit report:
Past and current loans and credit card accounts
Repayment history
Public records related to debt
Items in the collection
Inquiries made by creditors, also known as credit checks
Employers you have included in past credit applications
Your credit report does not include
Income
Bank account balances
Current employment status
If you have filed for unemployment
If you receive unemployment benefits
Applying for or receiving any type of government assistance
Filing for unemployment benefits isn’t bad for credit
There are no public records tracking who receives unemployment benefits. This income is not included on your credit report and should not affect your credit score. Unemployment benefits can be critical to getting through uncertain times. This reliable monthly income can help pay for necessities and help you pay your minimum monthly bills, which can keep your credit score intact.
How Unemployment Indirectly Affects Your Credit Score
Being unemployed or receiving unemployment benefits will not directly affect your score; however, unemployment may have a trickle-down effect on your credit score:
If you increase your debt and/or borrow more money, then your credit utilization may increase
Difficulty paying your bills in full and on time
Can I get a card if I’m unemployed?
While filing for unemployment benefits will not affect your credit score, it may make it more difficult to get a credit card.
During the application process, lenders will check your credit history and credit score. They may also ask where you work and what your salary is. Lenders want you to have a steady income, which may include savings or unemployment. They are also looking for a positive repayment history.
If you apply for a new credit card while you are unemployed, you should make sure you can make your monthly payments. You can use unemployment to pay off your credit card, but you should have a plan in place in case those benefits run out. Instead of taking on a new monthly bill, consider setting a budget and cutting back until you find a new job.
How to protect my credit score when you lose your job
If you hold a credit card balance while you are unemployed:
Continue to make payments on time. Even if you can only make the minimum payment, this may help your credit score.
Check your credit score regularly. Seeing a steady number can help ease the stress.
Keep an eye on your credit status. Visit Chase Credit Journey where you can check your score at any time to help you stay on track.
What if my credit score drops?
While it’s nice to get through unemployment unscathed, this is a major life event. A drop in your credit score is probably inevitable. Remember, negative information does not stay on your credit report forever and will decrease over time.
