Does unemployment affect your credit?

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

In 2023, the unemployment rate in the United States was 3.6%. Unemployment happens for many reasons, and the first thing people worry about when facing unemployment is their financial situation. If you’re currently unemployed, you may wonder, “Will unemployment hurt my credit?” It’s more complicated than you may think. 

Being unemployed, filing for unemployment insurance or receiving unemployment benefits won’t affect your credit score. An unemployed status may affect your financial circumstances—and your credit—indirectly, but it won’t have a direct impact on your credit the same way that missing a credit card bill or having an amount in collections would.

As long as you’re careful about managing your finances while facing unemployment, you may be able to keep the negative effects to a minimum. Here’s what you need to know.

Does unemployment show up on your credit report?

No, unemployment doesn’t show up on your credit report. Salary, employment status and filing for unemployment are all factors that don’t appear on credit reports.

Some information about your past employers may show up on your report if you’ve included that information in previous credit applications, but only as places of employment, not with regard to your current work status or income at those jobs. 

You can divide the information found in your credit report into four categories:

• Personal identifying information. This includes your name, address, Social Security number, birthdate and sometimes previous and current employers.
• Credit accounts. Information associated with these accounts includes the dates they’re opened or closed, whether the accounts are up to date or delinquent, the types of accounts, the credit limits, your payment history and your account balances.
• Credit inquiries. This will show the number of hard inquiries made by potential lenders and other entities regarding your credit.
• Public records. This will show instances of public records, including bankruptcies filed. 

Your credit report doesn’t include your marital status, income, employment status, balances in savings, checking or investments, criminal record, education, gender, race or sexual orientation. 

Will unemployment hurt my credit? Ways unemployment can indirectly affect your credit

Your FICO® credit score is made up of five factors: payment history (35%), amounts owed (30%), credit history (15%), credit mix (10%) and new credit (10%). Understanding how these five factors work will also give you a better understanding of how certain situations—such as unemployment—can affect your credit. 

Let’s look at some examples of how unemployment can negatively affect your credit. 

Late or missed payments

Unsurprisingly, unemployment often leads to late or missed payments. If you don’t have sufficient money in savings, the sudden lack of income can make it challenging for you to keep up with bills. This can quickly impact your credit. Payment history is the top factor contributing to your credit score, and one late or missed payment can cause your credit to take a hit. 

Consider contacting your lenders and asking for flexibility with your payments until you obtain another source of income.

High credit card usage

Amounts owed is the second biggest factor contributing to your credit score. It helps to keep your credit utilization ratio (the amount you owe versus the total amount available to you) as low as possible to avoid hurting your credit. Suppose you start putting everything on your credit cards because you’re unemployed and can’t cover your expenses with your savings. In that case, you’re much more likely to increase your credit utilization ratio. 

You can avoid relying on credit cards in this situation by building an emergency fund now. Most financial experts recommend saving 3 to 6 months’ expenses to keep yourself afloat if you ever lose your job or have another emergency. 

If you’re still employed, start prioritizing saving for an emergency fund today. You never know when your employment status can unexpectedly change. 

However, if you’re currently unemployed and don’t have an emergency fund, consider seeking alternative sources of money. Credit cards come with exceedingly high interest rates (often ranging from 18%-30%), so consistently using them without paying them off in full can be very expensive.

New credit applications

If you’re unemployed and need cash quickly, you may want to take out a new credit card or a loan. While this may be helpful, remember not to apply for several new credit accounts all at once. Each new credit application will come with a hard inquiry. Although one hard inquiry may have a minimal effect on your credit, several in a short period can have a more significant impact. 

A good rule of thumb is to wait at least 6 months between each credit application. If you need new credit to get you through this period of unemployment, find one type you’re most likely to get approved for and stick to it. Opening several new accounts isn’t the best solution. 

Does unemployment affect your chances of getting new credit?

Yes, unemployment can impact your chances of getting approved for new credit. However, this isn’t because your unemployment shows up on your credit report. In most instances, potential lenders are likely to ask for your employment status and income as part of their application process. 

Simply put, lenders don’t want to give credit to people they think won’t pay it back. To reduce their risk, they thoroughly inspect applicants to ensure they have enough money to pay their lenders and have demonstrated a habit of paying them. Your unemployed status will worry lenders, and they’ll assume you don’t have the money to pay them back, so they’re less likely to approve your application.

If you’re unemployed, but currently supplementing your income with gig work or supported financially by a partner, you may be able to address this concern by explaining your source of consistent income.

Tips for applying for credit when you’re unemployed 

Getting new credit while unemployed may be difficult, but it’s not impossible. Some of the ways you can increase your chances of getting credit are:

• Getting a cosigner. The cosigner on your loan or credit card must pay your outstanding debts if you can’t do it yourself. So, getting a cosigner helps lenders feel more comfortable that they’ll be paid no matter what. 
• Applying for a secured card. A secured credit card is backed by a cash deposit for the credit balance. For example, you put down $500 and receive a credit card with a $500 credit balance. This type of card reduces the lender’s risk because they have the deposit to pay off the balance if needed. 
• Becoming an authorized user on another card: Consider whether you have a friend or family member willing to add you as an authorized user on their card. This will allow you to access their credit card. As an added benefit, you’ll benefit from their payment history, which can work to help improve your credit. 
• Working to build your credit. You may choose to use this time to start building up your credit. A higher credit score typically means you get access to more credit options, higher credit amounts and better interest rates and loan terms. Improving your credit can have a long-term positive impact on your financial well-being. 

Alternatively, you may want to avoid applying for new credit during this time. You’ll have to decide what’s best for you during your period of unemployment. 

Remember, filing for and collecting unemployment benefits is a big help when you’re unemployed. Your filing won’t affect your credit, so apply as soon as possible. Unemployment benefits can help you stay on top of your payments (as much as possible) until you find a new job.

And regardless of your employment situation, you should start practicing good credit habits now. Healthy credit is incredibly beneficial and can help you in times of need throughout your life. Keep an eye on your credit by checking it regularly. You can check your credit now with a free credit assessment that will show you your FICO score and a short summary of your credit report.

Note: The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.