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Your Credit Can Be Impacted If You Lose Your Job

Learn how your credit can be impacted if you lose your job, and how to avoid unnecessary impacts to your credit rating even during a period of employment.

Photo by Bermix Studio on Unsplash

When you lose your job, you may find yourself scrambling to do financial damage control. At times like these, it's important to tackle immediate financial challenges first—like figuring out how to cover essential needs and perhaps filing for unemployment benefits. Yet there's another area that deserves your attention as well. You want to continue to pay close attention to your credit until you can get back on your feet.

On a positive note, FICO® Scores do not consider employment status. So, if you can avoid high credit card utilization and late payments, it is possible to avoid unnecessary impacts to your credit rating even during a period of unemployment.

Below are six educational tips that may help you avoid unnecessary impacts to your credit if you lose your job.

1. Cut expenses, tighten your budget, and dip into savings with caution.

When your primary source of income shuts down, you'll want to make adjustments to your budget (aka your spending plan) right away. It's wise to cut your spending down to the essentials (e.g., shelter, food, and utilities) and your debt payments while searching for new, full-time employment.

If you're looking for ways to cut expenses, you might consider some of the following ideas:

  • Cancel monthly subscriptions (e.g., streaming services, gym memberships, pest control, etc.).
  • Put dining out and takeout on hold in favor of more affordable food selections from the grocery store. (Consider shopping from your local grocery store ads or using coupons to reduce food costs further.)
  • Lower your mobile phone and internet costs.

Even if you have some emergency savings stashed away, you'll want to stretch those funds as much as possible. Sometimes the job-hunting process can last longer than expected.

2. Consider whether to file for unemployment benefits.

If your employer fired you or you quit your job, you might not qualify for unemployment benefits depending on the guidelines of your state's unemployment insurance program. But if your employer terminated your job or laid you off due to financial cutbacks, you may be eligible for this temporary financial assistance.

You can contact your state's unemployment agency for more information about the filing process. Just keep in mind that even after you file for unemployment, it may take a few weeks before you receive your first check. So, it's important to apply for benefits right away if you need the funds to make ends meet until you find a new job.

Note that unemployment benefits do not appear on your credit reports with Equifax, TransUnion, or Experian. Therefore, the receipt of these funds is not considered in your FICO® Scores.

3. Make at least the minimum payment.

Payment history makes up 35% of your FICO® Scores. So, if you have late payments, it could potentially have a significant negative impact on the score.

It is always important to continue paying your bills on time. Even if you can only afford to make the minimum payments on your credit card accounts, you may be able to avoid late payments on your credit reports (and the subsequent FICO® Score damage that can accompany them).

4. Talk to your lenders about hardship options.

Staying current on debt payments isn't always an easy task when you're unemployed. And when you lack sufficient emergency savings and unemployment benefits, avoiding late payments is even more difficult. If you're worried you won't have enough cash available to pay all of your bills on time, it's best to reach out to your lenders right away before you fall behind.

Federal pandemic relief efforts give borrowers the opportunity to request mortgage payment forbearance until June 30, 2021. Many federal student loans have payment pauses in effect until September 30, 2021, as well. (Renters may be able to avoid eviction thanks to a CDC order, but action is required to exercise this right.)

Other lenders may also be willing to offer you temporary hardship options, such as:

  • Payment deferment
  • Forbearance
  • Loan modification

FICO® Scores do not consider reported deferred payment plans or forbearance status to be negative. But if a lender reports the account to the credit bureaus as anything other than ''current,'' it might affect your FICO Scores in a negative way. Be sure to ask your lender how it will report your account to the credit bureaus before committing to an alternative payment arrangement.

5. Avoid new credit card debt as much as possible.

It can be tempting to use your credit cards more than usual when you are unemployed. But if your credit utilization rate increases, your FICO® Scores might decline as a result.

Credit card interest rates can be high. According to the Federal Reserve, the average credit card interest rate (on accounts that assessed interest) was 15.91% in February of 2021. So, when you charge more debt on your credit card than you can afford to pay off each month, you may be creating bigger financial problems for yourself in the future.

Job loss won't have a direct impact on your FICO® Score. However, if growing credit card debt increases your revolving utilization ratio, your credit scores could potentially suffer.

6. Review your credit reports.

Checking your three credit reports is a wise habit to establish at any time. But when you experience financial hardship like unemployment, the need to keep an eye on your credit reports is more important than ever.

You can access your three credit reports for free at The Fair Credit Reporting Act gives you the right to these free annual reports once every 12 months. During the COVID-19 pandemic, the three credit reporting agencies will allow you to access free credit reports every week.

Ideally, you should check your credit reports as soon as possible when you lose your job. By doing so, you'll have a "before" picture to reference if anything on your credit reports changes in the future.

You'll also want to re-check your three reports periodically throughout your unemployment period. Watch for any red flags or negative credit reporting in case you need to take action.

Bottom Line

Losing your job won't hurt your FICO® Scores directly, but the loss of income could put you in a precarious situation. However, if you're proactive, you may be able to put yourself in a better position to help avoid unnecessary impacts to your credit rating until you can replace your lost income and recover from the financial setback.

Michelle Black

Michelle Black, Founder of is a leading credit expert, financial writer, and speaker with nearly two decades of experience. Her work has been featured with major outlets such as Forbes, Reader's Digest, and U.S. News and World Report.