Effects of Unemployment on a Credit Score

There are no direct effects of unemployment on your credit score. However, the loss of income might affect your credit score. For example, if you have more bills than you have money while you are unemployed, this can certainly cause you to get behind in your payments, which will in turn affect your credit score.

Late Payments

When you are unemployed, you may be receiving unemployment benefits, which might not be enough to cover your bills. You may end up making late payments, which can affect your credit score negatively.

Fees

Should you make late payments or go over your credit limit as a result of unemployment, then you may be assessed late fees. This will only increase your debt load and the amount of the next payment, which can negatively impact your credit score.

Higher Interest Rates

When unemployment forces you to make late payments or go over your credit limit, then your creditors may impose higher interest rates because you defaulted on the original agreement. Your credit rate will suffer if you can't keep up with the payments as a result of the higher interest rates.

Foreclosure

If unemployment causes the bank to foreclose on your home, then this will cause your credit score to drop dramatically. A foreclosure will remain on your credit report for seven years.

Bankruptcy

If unemployment causes you to file for bankruptcy, this will negatively impact your credit for up to 10 years.

Resources

• United States Department of Labor
• Unemployment Insurance Benefits