Does Applying For Unemployment Affect Your Credit Score?

If you recently became unemployed, chances are that you’re thinking about filing for unemployment to help you get through rough times. So, you might be wondering, does apply for or filing for unemployment affect your credit score? This post provides you with everything you need to know about how applying for unemployment affects your credit and credit score.

Does Filing For Unemployment Affect Your Credit Score?

No, filing or applying for unemployment benefits does not affect your credit score because it does not appear on your credit report, and therefore, it does not affect your credit score. Only the name of your employer may appear on your credit report. Your employment status and income information do not appear on your credit report and therefore do not affect your credit score.

So, when you file for unemployment, rest assured that doing so does not impact your credit in any way, shape, or form. That said, your employer information may appear on your credit report only if you provided the name of your employer on a credit application. Even though the name of your employer may appear on your credit report, your employer information has no impact on your credit as it’s on there for identity verification purposes only.

That said, being on unemployment can indirectly affect your credit score. For example, if you were earning a higher income while being gainfully employed, going on unemployment may reduce the amount of money you receive. This could impact your ability to make your credit card and loan payments on time.

Your payment history makes up 35% of your credit score, and to maintain a good credit score, you must make your credit card and loan payments on time. Missing even a single credit card or loan payment can cause significant damage to your credit as a late payment notation is added to your account status.

A late payment can knock down your credit score by 100 or more points. So, it’s imperative that you continue to make your payments to avoid significant damage to your credit.

That said, being on unemployment may make it difficult for you to continue making timely payments on your credit. For this reason, it could affect your credit score.

Also, unemployment could cause you to use your credit card more often to cover expenses that you cannot cover without them. Using your credit card too frequently can increase your credit utilization (how much of your available credit you’re using), causing your credit score to drop.

As a rule of thumb, you should keep your credit utilization below 10% and never exceed 30%. If you exceed 30% credit utilization, you could notice a significant drop in your credit score. So, this is another way that relying on unemployment could negatively impact your credit score.

Is Filing For Unemployment Listed On Your Credit Report?

No, filing for unemployment is not listed on your credit report. So, any party that reviews your credit report will not know that you’re receiving unemployment unless you disclose that fact to them.

That said, if you review a copy of your credit report, you might see a section titled “employers” that lists your current and past employers. This is the only employment information that can appear on your credit report.

The employer information that appears on your credit report is gathered from information that you provided to lenders when applying for a credit card or loan.

For example, if you go to your local Mercedes Benz dealership and submit a credit application to qualify for a lease or finance a vehicle, the employer information you provide on that application is submitted to the credit bureaus. So, if you listed the name of your employer, it may be provided to the credit bureaus, causing it to appear on your credit report.

That said, other than the name of your past or current employer, no other employment information is added to your credit report.

The other information that you’ll find in your credit file is your personal information, such as name, DOB, social security number, addresses, and account statuses (credit cards, loans, negative information, and records of legal events affecting your credit score).

Does Receiving Unemployment Benefits Impact Your Credit Score?

No, receiving unemployment benefits does not impact your credit score because unemployment benefits are not reported to the credit reporting bureaus. Therefore, they neither appear on your credit report nor do they impact your credit score.

So, rest assured that receiving unemployment benefits has no impact on your credit score. That said, failing to repay credit card debt or loans as a result of your unemployment can impact your credit score.

Failing to pay credit cards or loans can impact your credit because late payments are reported to the credit reporting bureaus. A single late payment on a credit card or loan can cause your credit score to drop by 100 or more points. So, to maintain a good credit score even while unemployed, you should keep making your payments in full and on time.

Also, to prevent being unemployed from lowering your credit score, you should refrain from using your credit card as accumulating a large credit card balance can significantly lower your credit score, especially if you use 30% or more of your available credit. So, keep your account balances as low as possible to maintain a good credit score.

What Factors Affect Your Credit Score?

Here are all of the factors that affect your credit score:

  1. Payment History – Your payment history makes up 35% of your credit score, so it’s important to make your payments on credit cards, car loans, personal loans, student loans, and mortgage to keep your account in good standing so that that this factor positively affects your credit score. Missing even a single payment on such accounts could cause significant damage to your credit, so make sure to make all of your payments on time for the best impact on your credit score.

  2. Credit Utilization – Your credit utilization refers to how much of your available credit you’re using. The lower your credit utilization, the better this factor affects your credit score. Your credit utilization makes up 30% of your credit score, so to build good credit, you must maintain a healthy credit utilization. As a rule of thumb, you should keep your credit utilization below 10% and never exceed 30%. If you use more than 30% of your available credit, you will notice a significant drop in your credit score. For example, if you have a total credit card limit of $10,000, you should keep the balances on your accounts below $1,000 (10%) and never leave a balance of $3,000 (30%) or more as this will significantly reduce your credit score. So, if you have high credit card balances and you want to improve your credit score, you should pay down the balances on your credit cards as your credit utilization accounts for a huge chunk of your credit score.

  3. Length of Credit History – The length of your credit history is the third largest factor impacting your credit score. This factors favors persons who have old accounts that are open. It looks at the average age of all of your accounts. The older your accounts, the better your credit score will be. So, if you want to improve your credit, keep old accounts open even if you rarely use to the boost the average age of your accounts.

  4. Credit Mix – Your credix mix, which refers to the diversity of open accounts on your credit report accounts for 10% of your credit scores. The more types of open accounts you have, the better this factor impacts your credit score. So, having diverse open accounts, such as credit cards, auto loans, student loans, or mortgages can boost your credit score. So, it’s worth having account diversity since this provides a boost to your credit score. Credit diversity boosts your credit score because it shows lenders how you’re handling repayment of different types of debts.

  5. New Credit – The number of hard inquiries and new accounts on your credit report account for 10% of your credit score. For this factor to positively impact your credit score, you shouldn’t have too many hard inquiries nor too many new accounts opened within a short period of time. The less hard inquiries and new accounts you have, the better your credit score will be. Whenever you apply for a credit card or loan, a hard inquiry is placed on your credit report, slightly lowering your credit score. Although a single hard inquiry doesn’t lower your credit score by much, you should avoid too many credit applications because several hard inquiries could significantly lower your credit score. So, for the best impact to your credit score, avoid submitting too many credit applications within a short period of time.

Frequently Asked Questions (FAQs)

1. Can someone who checks your credit report know that you’ve filed for unemployment?

No, if someone checks your credit report, they will not be able to know that you’ve filed for unemployment as it does not appear on your credit report. Also, unemployment information is part of the public record, so no one can tell whether you’ve filed for or received unemployment benefits without you disclosing that information to them.

2. Does collecting unemployment affect your credit score?

No, collecting unemployment does not affect your credit score because unemployment does not appear on your credit report. Since it doesn’t appear on your credit report, it’s not factored into your credit score.

3. Does employment affect your credit score?

No, unemployment does not affect your credit score because it does not appear on your credit report. Therefore, it is not factored into your credit score.

4. Does unemployment lower your credit score?

No, unemployment does not appear on your credit report, therefore, it cannot lower your credit score.