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Can Being Unemployed Affect a Credit Score?

Unemployment—especially if it's sudden and unexpected—can wreak havoc on your lifestyle, putting any plans and goals on hold while you figure out your path back to employment and financial security. And while being unemployed has no direct effect on your credit scores, the reduction of income and financial stress that often accompany joblessness can lead to indirect impacts on your credit. Here's an overview of the situation, and some suggestions for minimizing any negative impacts unemployment might have on your personal credit.

How Unemployment Can Affect Your Credit Score

Credit scores are calculated using data compiled in your credit reports at the three national consumer credit bureaus (Experian, Equifax and TransUnion). Credit bureaus collect and organize information about your history of borrowing money and repaying your debts, including:

  • The loans and credit card accounts you've opened, when you opened them (and closed them, if they're closed), and which lending institutions issued them.
  • A record of at least seven years' worth of monthly payments on those accounts, including whether payments were made on time or late.
  • Certain legal events relevant to your ability to handle debt, including foreclosures on mortgaged properties, repossessions of financed cars and bankruptcies.
  • Any debts you've failed to repay that the lender has accepted as a loss (or "written off") or turned over to debt collectors for possible recovery.

That's a lot of information, but what's most relevant if you're recently unemployed is something it does not include: Credit reports do not contain any information about employment status, work history or personal income. There's also nothing in your credit report to indicate whether you've applied for or received unemployment compensation.

Because there's no information about employment (or lack thereof) in your credit report, there's no way for credit scoring systems such as the FICO® Score* or VantageScore® to factor it into your credit score. So job status does not, and cannot, influence your credit score directly.

Indirect Impacts on Credit

Of course, unemployment can adversely affect your ability to manage debt, and that can lead indirectly to diminished credit scores. Here's why:

  • Even if you're receiving unemployment compensation, your income typically drops considerably during periods of unemployment, which means there's less money available for paying bills, including loan payments and credit card balances. Late and missed debt payments will lower your credit scores more severely than any other factor.
  • Less disposable income can mean heavier reliance on credit cards for unexpected expenses (home and car repairs, for example) and for more routine purchases such as gas or groceries. If this leads to credit card balances that exceed about 30% of your borrowing limits, you may see declines in your credit scores.
  • Budget-balancing challenges that accompany unemployment can bring about missteps such as overdrawn checking accounts, which can lead in turn to fees and penalties that further deplete funds, causing a cascade of additional bounced checks, returned-check fees and so on. Overdraft fees and penalties do not appear on credit reports (and therefore cannot affect credit scores directly), but bouncing a check on a mortgage, car loan payment or credit card bill can lead to late payments that appear on your credit report and hurt your credit scores.

Even if you preserve your credit standing by maintaining timely payments and avoiding high credit card balances, unemployment can lower your access to loans and other credit. That's because many lenders require borrowers to provide proof of employment or income, in addition to demonstrating satisfactory credit histories and sufficient credit scores.

What Factors Affect Your Credit Score?

If you're contending with unemployment (and even if you're not), it's helpful to keep in mind the factors that matter the most to your credit score, so you can prioritize debt management decisions and maximize your score:

  1. Payment history. The single most important factor in determining your credit score is payment history and your ability to demonstrate the ability to pay your bills on time. Lenders want to be confident you will stick to the repayment schedule you agree to, so missing just one payment can have a negative impact on your credit scores. Payment history accounts for about 35% of your FICO® Score, the credit score used by most lenders.
  2. Credit usage. Your credit utilization ratio is calculated by dividing the total of all your outstanding credit card balances by the total of all your borrowing limits. This ratio can serve as a snapshot of your reliance on non-cash funds, and credit utilization in excess of 30% has a negative effect on your credit scores. Credit utilization accounts for 30% of your FICO® Score.
  3. Credit mix. People with top credit scores often carry a diverse portfolio of credit accounts, and if all other factors are the same, credit scoring systems tend to assign higher scores to users with a variety of different loan types. Lenders consider a healthy credit mix as an indication of successful debt management experience.
  4. Hard inquiries. Hard inquiries appear in your credit file when a lender requests your credit report or credit score as part of their decision-making process. Hard inquiries typically cause short-term dips in your credit scores. While hard inquiries remain in your credit file for up to two years, the score reductions related to them typically recover within a few months, as long as you keep up with your bill payments.
  5. Negative information. Foreclosures, accounts turned over to collection agencies, charge-offs (unpaid accounts lenders accept as losses) and bankruptcies are all examples of negative information that can appear in your credit files. The impact of negative credit report entries on your credit scores depends on the type of record and the state of your credit when they appear, but lenders typically treat these as red flags when considering credit applications. These records typically stay in your file for at least seven years, so it's best to avoid them.

Take Precautions in Case of Unemployment

While unemployment does not directly harm your credit, there are a few preparations you can make to minimize its potential indirect impact on your credit:

  • Maintain a strong emergency fund to help you cover expenses and bridge the gap between jobs.
  • Keep the balance on at least one of your credit cards at or very close to zero and use that card for emergencies. Keeping your credit cards active is good for your credit scores, so you don't have to keep the emergency card locked in a vault, but ideally you should use it for a small recurring expense, such as a phone bill or a gym membership, that you can comfortably pay in full every month. If you need the card for an emergency purchase, try to avoid having your balance exceed 30% of the card's borrowing limit.
  • If you have high outstanding balances on your credit cards and unemployment is forcing you to make only the minimum required payments on your credit card bills, consider a debt consolidation loan. If you're out of work, you may have some difficulty obtaining a personal loan like this, but it's worth trying. If you qualify, even if you don't get the best available interest rate, chances are good you'll pay less than the going rate for credit cards—and that can help your debt from spiraling upward while you make minimum payments.

Unemployment is a stressful experience, but with careful planning and even more careful management of your debt and bill payment, you can get through it with your credit scores intact.


Want to instantly increase your credit score? Experian Boost helps by giving you credit for the utility and mobile phone bills you're already paying. Until now, those payments did not positively impact your score.

This service is completely free and can boost your credit score fast by using your own positive payment history. It can also help those with poor or limited credit situations. Other services such as credit repair may cost you up to thousands and only help remove inaccuracies from your credit report.


Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.

*Credit score calculated based on FICO® Score 8 model. Your lender or insurer may use a different FICO® Score than FICO® Score 8, or another type of credit score altogether. Learn more.

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