If you’ve recently filed for unemployment, it’s fair to assume that you have a number of concerns whirling around your mind at the moment. Fortunately, negatively impacting your credit doesn’t have to be one of them. In a time of much uncertainty, you can be certain about one thing: filing for unemployment and receiving unemployment compensation does not directly impact your credit score.

With that said, being unemployed can cause shifts in your money habits in ways that could cause a drop in your score. To make sure you get through this challenging period without hurting your credit, we’re going to walk through a few things to avoid if you’ve recently lost your job and filed for unemployment.

Let’s begin with the most common way people hurt their credit score after becoming unemployed – overspending with credit cards.

Overspending with credit cards

When you file for unemployment, you receive some financial assistance – but it’s likely a fraction of what you had coming in. In many cases, people start putting whatever expenses they can’t afford to pay in cash on credit cards, driving up their balances, or maxing the cards out altogether.

Be careful here. If you spend more on your credit cards now than you did while you were employed, your credit utilization will increase, which could ding your credit score. Remember, it’s commonly recommended to use less than 30% of your available credit to keep from impacting your score.

To find your credit utilization ratio, follow these simple steps:
  • Add up the credit limits of all of your credit cards
  • Add up all of the balances on your credit cards
  • Divide the two numbers (balances/credit limits)
  • Multiply that number by 100

And voila! You have your credit utilization ratio.


Here’s an example:

Available credit: $10,000 ——— Account balance: $3,000

3,000/10,000 = .3

3 x 100 = 30%.

Credit utilization = 30%


So, if you have $10,000 of available credit, try your best to spend less than $3,000 on your credit cards to be safe. If you have $20,000 of available credit, keep your balance below $6,000 (and so on.)

Credit utilization influences 30% of your FICO score, so using more than 30% of your available credit could affect your score significantly. If you’re unable to keep your balances below 30% of your available credit, you have two options: request a credit limit increase on an existing account or apply for new credit.

Requesting a credit line increase is simple – depending on your lender, you may be able to request one online, or you might have to call in and speak with a customer service representative to see if you qualify. But what if you want to apply for a new credit card to help cover these expenses? How does applying for new credit impact your score?

Applying for new credit

New credit makes up 10% of your FICO score. It’s not nearly as influential on your score as your credit utilization, but its impact is far from negligible.

When you apply for new credit, an inquiry is placed on your credit report. While one hard inquiry may only decrease your credit score by 5 points or less, the real danger lies in applying for multiple financial products in a short amount of time.

For example, let’s say you apply for 5 credit cards and 3 personal loans within a 1-month span. Not only could your credit score decrease by up to 40 points, but lenders may interpret your search for new credit as a sign that you’re struggling to manage your current accounts – which could make it harder to qualify for a new line of credit.

It’s also worth noting that when you apply for new credit, you’ll often be required to update information about your employment status. Being unemployed won’t prevent you from applying for new credit, but lenders usually prefer to give funding to borrowers who have a steady stream of income. If they see that you don’t have the resources to repay the debt, you may have trouble being approved.

Instead of applying for new credit, it could be worthwhile to try your hand at creating a budget and cutting back on spending first. It isn’t the most fun activity, but if it helps you stay afloat without hurting your credit, that’s all that matters. Take a look at the resources we’ve linked below to learn how to create a game-changing budget and find a few ways to reduce your monthly expenses.

 Late payments

Your payment history makes up 35% of your FICO score. According to FICO, it’s the most influential factor in how your credit is assessed – so even one late payment can cause a serious drop in your score. For borrowers with otherwise perfect credit, a payment that’s 30+ days past due can knock up to 100 points off your credit score, and it can take a lot of time and hard work to climb back up afterward.

To keep your credit healthy during this temporary setback, focus on making the minimum payments necessary each month to keep your accounts in good standing. Once you’re out of this rough patch, you can pay more towards each balance – but for now, it’s wise to preserve as many funds as you can.

If you’re certain you won’t be able to make your minimum payments, it pays to be proactive. Contact your lenders and let them know you’re experiencing financial difficulty. They may be able to put you on a payment program that decreases your monthly payment, or they could even let you skip a payment or two until you get back on your feet. Either way, they’re going to be much more willing to work with you if you reach out before your due date.

Read more: The Guide to Understanding Payment Forgiveness and Relief During COVID-19

Check your credit reports regularly

Now that you know a few of the ways unemployment can indirectly impact your credit score, we have an important tip:

Now more than ever, it’s crucial that you keep an eye on your credit reports. Until April 2021, the big three credit bureaus – Equifax, Experian, and Transunion – are offering free weekly online credit reports to help consumers better manage their finances during COVID.

To access your reports, follow the instructions we’ve outlined in our article The Simple Way to Get Your Credit Reports for Free Every Week. Once you have your reports in front of you, you’ll be able to make sure you’re not falling behind on payments and have the opportunity to spot fraud and dispute any inaccuracies you might find.

Something to keep in mind

One more thing before we wrap up: Losing a job is an incredibly stressful experience, so don’t be too hard on yourself if your credit score sees a dip. If using over 30% of your available credit is necessary to get you through this period, it’s what you have to do.

Take care of yourself first. And remember, credit scores are always changing – a few missteps here and there likely won’t affect your score forever. Once you find new employment, you’ll have the opportunity to start building your score again.

If you’d like some more tips on how to deal with unemployment, both emotionally and financially, check out our resource 10 Crucial Steps to Take While Dealing with Unexpected Unemployment.

Or, if videos are more your thing, we’ve got you covered there too! Take a look at a few of the interviews on developing a financial plan and managing debt after a sudden loss of income here.