Credit and Unemployment

Generally, being unemployed shouldn’t hurt your credit, and unemployment benefits don’t typically appear on your credit report. 

While being out of work shouldn’t impact your credit directly, it may contribute to challenging financial situations that do. When money is tight, people may be more likely to make late payments, have accounts sent to collections, use more of their available credit and open new credit lines or accounts to make ends meet. All of these may negatively affect your credit score.

Filing for unemployment does not involve a credit inquiry and, therefore, shouldn’t impact your credit score. 

Typically, you can apply for new credit cards while unemployed. However, doing so may have a two-fold effect on your credit profile. 

First, when you apply for a new credit card or account, banks or lenders usually make a hard credit inquiry to assess your financial reliability, which may cause your credit score to temporarily drop by a few points. If multiple requests for the same product—like credit cards—appear in a short timeframe, the first inquiry may be the only one that affects your score. 

Second, if you’re approved for the credit card, opening the new account may cause another drop in your credit score. Having recently opened new or multiple credit accounts may also cause potential lenders to view you as a risky borrower.

Reducing your credit card debt should lower your credit usage, which may help improve your credit score. However, ensuring that your other accounts are paid on time as much as possible is also important.

CreditWise’s Credit Score Simulator may help you make important financial decisions like these by simulating the effects various actions might have on your credit score.