How Job Loss Can Affect Your Credit Score

A concerned woman reads a notification of a pending job layoff as she leans against a store's window
••• Emilija Manevska / Getty Images

Job loss is tough to deal with. Facing unemployment can be even more stressful if you’re the head of household or primary breadwinner, and perhaps worse if you’re a single parent or sole income provider. However, while losing your job will affect much of your life, it won’t directly affect your credit score.

What Does Affect Your Credit Score

There are five key factors that affect your credit score: payment history, level of debt, the age of credit history, types of credit accounts, and inquiries to your credit report.

Your employment status and salary are not factors that directly impact your credit score. In fact, your creditors and the credit bureaus may not even find out you’ve lost your job unless you tell them.

How Your Credit Score May Be Indirectly Affected By Job Loss

That said, your credit score could be indirectly impacted by your job loss, or rather how you handle credit and bill payment during your period of unemployment.

These are some credit-impacting events that could happen as a result of you losing your job:

You Fall Behind on Your Credit Card or Loan Payments

After losing your job, it may be impossible to stay current on all your payments. This is understandable after a dramatic loss of income. However, payments over 30 days late still get reported to the credit bureaus and will impact your credit score.

Payment history makes up 35% of your credit score and is the biggest factor influencing your credit. The further behind you get on your bills, the more your credit score will be impacted.

Tip

Contact your creditors and lenders to discuss hardship options. You may be able to defer payments for a few months until you're able to begin making regular payments again.

You Increase Your Credit Card Balances or Take Out New Loans to Make Ends Meet

Without enough money in savings or insufficient unemployment benefits, you may turn to credit cards or loans to make ends meet. But here's the trouble with that: Rising credit card balances and high debt amounts can hurt your credit score. Your level of debt makes up 30% of your credit score.

On top of that, the more debt you have, the higher your monthly payments can be. That will put more strain on your ability to make ends meet.

You Open Up Several New Accounts to Get Money to Pay Your Bills

Opening new accounts can hurt your credit score in two ways. First, new accounts will lower your credit age, which is 15% of your credit score.

Second, the additional credit report inquiries—making up 10% of your credit score—will also bring your credit score down.

Warning

Medical debt collections, bankruptcy, foreclosure, repossession, tax liens, and student loan default are other credit-damaging events that could occur during your period of unemployment. These hurt your credit much more and are much harder to recover from than a late payment or high credit card balance.

Maintain Your Credit Score for Your Job Search

It’s important to keep your credit score intact as best you can, even though you’ve lost your job. Some employers may perform credit checks as part of the hiring process.

Shaky credit history could cost you a potential job. You’ll face a dilemma that many Americans deal with: needing a job to pay your bills and improve your credit, yet being unable to get a job because of bad credit history.

One in four unemployed persons says a prospective employer has asked requested a credit check in the job application process, according to a survey conducted by Demos. In the same survey, one in 10 said they were not hired because of information on their credit report.

The longer you’re unemployed, the harder it will be to live off unemployment, savings, or your spouse’s sole income. Do your best to maintain your credit standing so it won’t stand in the way of landing your next job.