How Unemployment Affects Credit Scores

Credit: in today’s world, credit plays a large part in your financial life. It reflects your financial standing, it provides a snapshot of responsibility and it provides an overview of your employment situation. Credit histories have become so important in the workplace that today more and more employers rely on credit reporting data as a part of the employee selection screening process. Individuals with a few bumps and bruises on their credit report might find it more challenging to secure a new job than those with solid credit histories. However, what happens to your credit when you are collecting unemployment?

-Unemployment and your credit

First thing is first, unemployment or claims for unemployment have bearing on your credit report. The only thing that may be reflected on your credit report would be an employment gap in your work history.

Although there is equal chance that employment gaps may not show up, either. Since most credit reports only report your most recent employer, sans dates, it is unlikely that an unemployment status will ever work its way on to your credit history.

-What your credit report does track

Your credit history is comprised of basic financial elements:

1)         Payment history

2)         Outstanding debt

3)         Existing accounts

4)         New accounts

5)         Requests for new credit

None of this information is directly related to your employment, or lack thereof.

-Byproducts of unemployment and your credit

Irrespective of direct correlation of unemployment and your credit report, the elephant in the room remains the byproducts associated with the long-term affects of unemployment.

For example, most unemployment claims are not sufficient to pay for monthly expenses and credit obligations. Thus, for most folks, credit obligations tend to give way to basic needs. In these cases, unemployment would be reflected on your credit report, albeit indirectly, since you are no longer able to keep up with regular monthly payments and will (eventually) run the risk of racking up charged off and collection accounts.


Most credit issuers and banks offer a type of consumer insurance –typically for a small monthly fee– that will pay off all or a significant portion of a credit obligation in the event of unemployment. Banks that issue car or home loans often have special programs available, designed to provide a temporary reprieve to struggling consumers currently unable to meet their loan obligations. If you or someone you know is currently unemployed and unsure of how to make ends meet, the best financial advice is to have them contact their credit issuers sooner than later to discuss the options and programs available to them before short-term unemployment issues morph into long-term financial problems.