Does unemployment affect your credit score?
If you're worried that filing for unemployment benefits will affect your credit score, don't be — this income isn't reported to credit bureaus. Job loss, however, could lead to missed payments or increased credit card use, both of which can hurt your credit score. See which factors determine your score and learn how to protect your credit until you're back on your feet.
Why your credit score matters
Generally, lenders check your credit score when you apply for a credit card or a loan. This number determines if you can borrow money and how much. It also affects your interest rates and your repayment terms. In addition to your credit score, lenders usually look at credit history, income and other factors when determining how much someone can borrow and what interest rates you may qualify for.
VantageScore® and FICO®, two of the most common credit scoring systems, generally rate consumers between 300 to 850. The higher the score, the better. There are several factors that go into calculating your credit score; the factors vary by the credit-scoring system.
The six key factors that make up your VantageScore® credit score are:
- Payment history
- Credit history
- Credit usage
- Total balances
- Recent credit
- Available credit
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 the most vulnerable when experiencing unemployment. If you're unable to pay your bills or use more than 30 percent of your credit limit, your credit score could take a hit.
Unemployment won't appear on your credit report
Your credit report is an overview of your financial situation, but remember, it doesn't include every detail of your financial life.
What's included in a credit report:
- Past and present loan and credit card accounts
- Repayment history
- Public records related to debt
- Items in collections
- Inquiries, also known as credit checks, made by lenders
- Employers you included on past credit applications
Your credit report does not include:
- Income
- Bank account balances
- Current employment status
- If you've filed for unemployment
- If you receive unemployment benefits
- Applying for or receiving any type of government assistance
Filing for unemployment isn't bad for credit
No public records track who collects unemployment benefits. This income isn't included in your credit report and shouldn't affect your credit score. Unemployment benefits may be essential to getting through an uncertain time. This reliable monthly income can help cover essentials and help you make minimum monthly payments on bills, which may keep your credit score intact.
How unemployment can affect your credit score indirectly
Being unemployed or receiving unemployment benefits will not affect your score directly; however, losing your job may have a trickle-down effect on your credit score:
- If you increase your debt and/or borrow more, then your credit utilization ratio may increase
- Difficulty paying bills on time and in full
Can I apply for a card when I'm unemployed?
While filing for unemployment won't impact your credit score, it may make it harder to get a credit card.
During the application process, lenders 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 could include savings or unemployment. They're also looking for a positive repayment history.
If you apply for a new credit card while unemployed, you should make sure that you can cover the monthly payments. You may use unemployment to repay your credit card, but you should have a plan in case those benefits run out. Instead of taking on a new monthly bill, you might consider making a budget and cutting back on spending until you find new employment.
How to protect my credit score when unemployed
If you're carrying a credit card balance while unemployed:
Keep making payments on time. Even if you can only make the minimum payment, this may help your credit score.
Regularly check your credit score. Seeing a stable number can help relieve stress.
Keep tabs on your credit health. Access Chase Credit Journey where you can view your score at any time to help you stay on track.
What if my credit score goes down?
While it's nice to imagine getting through a job loss unharmed, it's a significant life event. A dip in your credit score may be unavoidable. Remember, negative information doesn't stay on your credit report forever and will decrease over time.
