The COVID-19 pandemic has changed the economy in many different ways. One of the biggest changes for many people was the change in employment. In some cases, many were fired. In other cases, people were given leave or their working hours reduced. The number of people receiving unemployment benefits has also reached record numbers. In this article we will look at how applying for unemployment and / or receiving unemployment benefit can affect your creditworthiness.
How does unemployment benefit affect your creditworthiness?
The procedure for registering unemployment is different in each country. In general, you must submit your documents either in person or online to your state's employment office. The amount of unemployment benefit you receive generally depends on the salary you earned in your last job.
The CARES law of 2020 has made several changes to the unemployment process. First of all, the requirement that several countries exist in which an active search for work was required to receive unemployment benefits was dispensed with. It also broadened the definition of who is eligible for unemployment and gave an additional $ 600 / week to most people receiving unemployment benefits.
The good news is that registration for unemployment or receiving unemployment benefits does NOT appear in your credit report. In general, credit reports only update your employment information when you apply for a new loan. And remember that only information about your financial accounts affects your credit rating.
Is unemployment registration bad for your credit?
As we discussed earlier, simply registering for unemployment or receiving unemployment benefit is not bad for your credit. Unemployment does not affect your creditworthiness and in most cases is not shown in your credit report at all.
Where unemployed can If you damage your credit, all side effects will arise when you are unemployed. In general, the unemployment benefit is less than the salary you received (although the additional $ 600 from the CARES law changed that for some people). Obviously, with less income, this has a big impact on your salary Total budget.
What can damage your balance if you are unemployed?
Even if applying for unemployment benefit or receiving unemployment benefit does not affect your creditworthiness, your credit may be damaged during your unemployment. Two of the factors that Make your credit score are your total balances and your credit utilization. Both can be affected if your finances are affected by loss of income.
If you find yourself to continue live under your means While your income is reduced, it is likely that you have higher credit on your credit cards. This leads to an increase in your credit utilization and has a negative impact on your creditworthiness.
How to protect your unemployment loan
There are a few steps you can take to protect your loan while unemployed. The key here is to minimize the impact that giving up your regular salary will have on the rest of your finances.
A great way to protect your credit while unemployed is too Make sure you have a solid emergency fund. Ideally, you should aim to spend 3 to 6 months in an emergency fund. However, if you haven't been able to create one yet, saying no should you have one! If your emergency fund or savings do not cover your time without employment, you have several options.
Reduce your expenses
Ask close friends or family members for a favor
Accept that your credit rating will be affected
The good news is that if your time on a limited income is short, your credit score should recover in no time!
Does unemployment affect your ability to get new loans?
Yes, this has a significant impact on your ability to get new credit cards or other loans. Most places that offer loans ask about your current employment status. This is useful because they need to assess your ability to repay the loan or loan they offer.
Different banks and creditors have different guidelines for evaluating the information you provide them with. In many cases the bank will request proof of employment, e.g. B. Your pay slips. This applies in particular if try to qualify for a mortgage. Failure to provide up-to-date pay slips can affect your ability to get a home loan, even if you have already been pre-qualified or approved.
Hopefully this information has been helpful if you are in a situation where you are wondering how unemployment affects your credit rating.
Dan Miller (20 posts)
Dan Miller is a freelance writer and founder of PointsWithACrew.com, a website that helps families travel for free / cheap. His home base is in Cincinnati, but he tries to travel the world as much as possible with his wife and 6 children.