How to Protect Your Credit if You Lose Your Job

Does Losing Your Job Affect Your Credit Score?

No, losing your job doesn’t affect your credit score. Credit scores are calculated using information in your credit reports, and credit reports do not list employment status or income, so unemployment cannot directly affect credit scores.

Unemployment can affect credit indirectly, if reduction in income causes you to fall behind on your bills. Missed debt payments will hurt your credit scores. So will more severe consequences of multiple missed payments, such as loan default, accounts turned over to collections and foreclosure.

Here are some recommendations for avoiding credit difficulties in case you lose your job.

How to Protect Your Credit When Unemployed

The key to maintaining strong credit is responsible budgeting and debt management—goals that take on new importance when you’re out of work. Here are some tactics that can help you—and your hard-earned credit status—get by until you find new work.

Keep Up With Payments

Payment history is the most influential factor that contributes to credit scores, responsible for about 35% of your FICO Score. Just one payment that’s late by 30 days or more can do significant harm to your scores. Do your best to make at least the minimum required payment on your credit card bills, and to make all scheduled payments on installment debt such as student loans, auto loans or mortgages.

Avoid New Debt

Total outstanding debt is part of a credit score factor characterized as “amounts owed,” which is responsible for about 30% of your FICO Score. Avoiding new debt by limiting your use of credit cards and other forms of borrowing can help keep this factor from hurting your credit scores. Perhaps more importantly when income is tight, it can also prevent you from racking up additional interest charges.

Meet With a Credit Counselor

A certified, nonprofit credit counselor can be a great resource when you’re trying to manage debts on a reduced income. They can help you create a budget, prioritize your debts (see below) and make recommendations on how to make the most of the funds you have available. If your debts exceed your budget, they can even work with creditors on your behalf to set up a debt management plan that can help you get your obligations under control. A debt management plan can do damage to your credit scores, but it’s less harmful than defaulting on your debts or filing bankruptcy.

Prioritize Debts

List your monthly bills, including debts, with monthly payment amount and total balances, and then rank them by importance. Your circumstances will determine the priorities, but if you have a mortgage, preserving your home would likely make you rank that first. Utilities and any car loans might come next, then perhaps student loans and credit card bills.

Based on these rankings, you can get a rough idea of how long your savings (and unemployment payments, if any) can get you by, and you can make decisions about whether, for instance, paying off credit card bills in full upfront rather than making minimum payments makes sense to prevent spiraling finance charges. If you need help with this process, consider consulting a certified credit counselor.

Ideally, your savings and other income will allow you to cover all bills until you’re able to find new work, but if you start to get squeezed, this exercise also can help you decide how to allocate limited funds.

Consider Seeking Forbearance or Deferment

If you have a federally backed student loan, you should contact your loan servicer as soon as you become unemployed, as you may be eligible for loan deferment—suspension of payments and interest accumulation on the debt.

If your debts are in good standing, your credit is reasonably sound and you’re confident your income will rebound quickly—and can offer evidence to that effect—your other creditors may be willing to grant forbearance. This is a temporary arrangement that lowers or suspends your monthly payment to help you through a short-term financial hardship.

Forbearance is typically offered only to customers with good credit who can show that their difficulties will be temporary, such as by providing evidence of a job offer or inheritance. Interest charges typically accrue during forbearance, and you’ll be expected to repay any portion of your regular payments that weren’t made during the forbearance period.

Monitor Your Credit

Checking your credit reports regularly and monitoring your credit score can help you gauge how well you’re managing your debt and preserving your credit.

How to Make Ends Meet When You’re Unemployed

When you’ve lost your job, your top priority should be finding another one, but in the meantime these are some approaches to keeping your finances under control when your income has been reduced:

Collect Unemployment Benefits

Find out from your ex-employer if you’re eligible for unemployment benefits and contact your state labor department immediately to find out about setting up payments. You may have to fulfill certain obligations, such as attending a job-seeker seminar, before you qualify, and it may take several weeks for payments to kick in. Just be aware that any unemployment benefit you receive will be less than you earned in your last job. It may help you bridge the gap to your next job, but you’ll still need to economize.

Tap Your Emergency Fund

If you’ve followed expert advice and set aside an emergency fund, unemployment qualifies as the “rainy day” you’ve been preparing for. Draw down these funds as slowly as possible, using them as needed to keep up with your bills. And when you land your new job, make sure to replenish the fund as soon as possible.

Pursue a Side Hustle or Part-Time Work

Your main focus when unemployed should be finding new full-time employment, but a side hustle such as rideshare driving or food delivery may allow you to bring in some money while still giving you the flexibility to network and go on interviews. Depending on the type of job you’re seeking, part-time weekend work such as serving or bartending could also leave your weekdays open for the job hunt.

Reduce Expenses

When unemployment lowers your income, reducing discretionary spending can be crucial to keeping up with debt obligations. This may mean cutting back on restaurant meals, travel and entertainment, and eliminating or reducing recurring expenses such as streaming services, gym memberships and auto-renewing subscriptions. If you’re really worried about stretching your savings, consider switching to a bare-bones budget to shed as much extra spending as possible.

Seek Help From Friends or Family

It may be difficult to admit you’re in financial trouble and to ask for help from loved ones, but if you’re at risk of falling behind on your debts, seeking a private loan, temporary housing or other support can help you get through until you land a new job.

Consider Shedding Debt

If you have an auto loan or mortgage you’re concerned you won’t be able to afford, it may make sense to consider selling your car or house. This will likely be a difficult decision, but you could lose those assets anyway if you fall behind on payments. Selling on your own terms could leave you with more cash to work with while protecting your credit standing. Note that, even with a good credit score, it may be difficult to finance another vehicle or home without income, so you need a backup plan for covering your housing and transportation needs.

The Bottom Line

Losing a job can be discouraging, but prudent budgeting, economizing and prioritizing your debts can help you get by until you get new work—and keep your credit intact. Checking your FICO Score from Experian is a great way to keep track of your credit status as you work toward the next step in your career.