Does Being Unemployed Hurt Your Credit Scores?

Updated on May 31, 2022 | by Joseph Williams

How unemployment hurts your credit score

If you are unemployed and looking to file for unemployment, probably you are thinking if you can qualify or what steps are required to enroll. You do not know if being unemployed can have an impact on your credit record. But, people with an unstable job may opt for self employed loans. 

You would be worried about the financial impact that unemployment will have, and worry that your job loss can damage your credit score. With the right planning and preparation, it is possible to maintain the scores when out of work. Let us check out how it is possible. 

How Can Unemployment Affect Your Credit Score?

Filing for unemployment doesn’t hurt your credit directly, but being unemployed will lead to several scenarios that can happen like overspending and more. Suppose borrowers increase their credit card use when unemployed, the credit utilization may increase and it will signal the higher amount of the risk to lenders.

Know If You Have To Carry The Balance

Suppose you became unemployed recently, you might have to rely on the credit more than normal to make your ends meet — particularly if you do not have the emergency fund to keep you covered. Collecting benefits of unemployment will help to ease this burden, but if you find yourself getting short, know your options. 

The credit cards offer an introductory APR period that will help you to avoid the interest charges in a short term, however after your APR period finishes, you will start accruing interest. There’re credit cards that provide an APR period for the balance transfers, thus you may move over the current debt to the new credit card & avoid any interest for a limited time.

Different Ways Unemployment Won’t Affect your Credit Score

There are some steps that you may take that will help to protect your credit when unemployed and take self employed loans. The Key is to reduce the effects being without salary has on your finances. 

Unemployment Claims

An unemployment claim isn’t a public record and unemployment benefits aren’t debts; so you are in no obligation of paying them back. Thus, unemployment benefits and claims won’t affect your score in any way.

Change in Your Income

No matter if there is a difference in your income or you aren’t earning more income it won’t show on the credit report. One best way of protecting your credit when unemployed is to ensure to have a solid emergency fund. Basically, you must aim to have three to six months of the expenses in your emergency fund. However, if you are not able to create any yet, it will not help to say you must have! Suppose your emergency cash or savings will not cover your period without employment, then you have some options like self employed loans to consider.

Assess Your Credit

Regularly checking your credit will make you feel easy as well as help you to understand what is happening with your credit. Only if something sudden changes in the credit card spending and repayment, your score must not fluctuate much in the short time frame. A 12 month loan period repayment can help you to gradually increase your credit score to a good level.

Make a Proper Budget 

You are not the only one who is in this fix. On the expense side, it is the right time you must cut back your spending power. It means to make the right decisions on things that are important and what you can avoid.

If you develop your budget, divide your expenses into the mandatory & discretionary categories. The mandatory expenses include food, utility payments, and other expenses cannot be avoided. Several discretionary ones such as attending movies, sporting events, or dining out, needs to be cut down. 

Final Words

Self employed loans for the unemployed are one kind of credit that an individual with income instability will avail of under specified terms & conditions. These loans are accessible as personal credits, secured credits, and more for unemployed individuals.  

Make sure you check your credit score during your unemployment period to ensure that you are not falling behind the bills and spot any potential fraud. In that way, you are in the right position of accessing new credit once you are ready, and time between jobs will not have affected your capability of achieving your dream financial goals.

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