If you lost your job, you probably have a lot on your mind. One bit of good news, though, is that unemployment doesn't show up on your credit report. Receiving unemployment benefits can even put you in a better position to negotiate with your creditors. Still, it's important to keep an eye on your credit report, as potential employers often use credit reports in their hiring decisions.
Credit Report
According to Maxine Sweet, vice president of public education at Experian, your credit report does not include the fact that you are receiving unemployment benefits. Instead, your credit report lists your creditors, how much you owe them, your credit limits and your payment history. It also includes public records such as lawsuits, judgments and tax liens.
Credit Score and Rating
Unemployment doesn't affect your credit score. However, potential creditors use criteria other than credit scores and reports in determining credit worthiness. Many creditors are nervous about lending money to someone who doesn't currently have a job. In addition, late payments or a high debt-to-income ratio (even if you make your minimum payments on time) can hurt your credit score.
Employment and Credit
Many employers review credit reports as part of the hiring process. If being unemployed is keeping you from paying your bills, the damage to your credit can make matters worse by keeping you from getting a good job. You have a right to a free copy of your credit report from all three major credit bureaus if unemployed and looking for a job. (This is over and above the one credit report everyone can receive during a 12-month period.) It's a good idea to check your credit report while job hunting to make sure there are no errors on the report and that you can explain derogatory information to a potential employer. Contact each credit bureau for a copy of your credit report if you've already claimed your free credit reports for the year. If you have not claimed your free credit reports, visit annualcreditreport.com to do so.
Garnishment Exemption
One silver lining for the unemployed is that creditors cannot garnish your unemployment checks for most types of debt. If a creditor sues you and wins a judgment, inform the creditor and the court that your income is from unemployment benefits.
Negotiating Debts
Contact your creditors and explain that you are unemployed, and be prepared to show proof that you are receiving unemployment benefits. Because they can't garnish your unemployment money, your creditors may settle your debts for less than you owe, reduce your interest rate or put you on a payment plan.
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