Is Unemployment Creditable Income?

Money from unemployment benefits is legitimate (creditable) income. However, unemployment income is temporary, making it difficult or impossible to use as the basis for a loan. A person whose only income is from unemployment benefits likely will have a difficult time renting an apartment, purchasing a car on credit or gaining approval for a credit card.

Function

People losing their jobs through no fault of their own are sometimes eligible for unemployment benefits. Recipients receive weekly paychecks from state agencies for an initial period of 26 weeks. Benefits are sometimes renewable, to a maximum of 99 weeks as of 2011. People receiving unemployment receive significantly less money than they earned on their jobs, causing hardships for those who were already struggling to make ends meet.

Credit

Receiving unemployment does not directly affect a person's credit score. Credit scores are three-digit numbers ranging from 350 to 850. Scores are based on information appearing on a debtor's credit reports. Unemployment information is not recorded on credit reports. However, all applications for credit ask for employment and income information. Creditors use the information to determine if the applicant can afford additional credit. Stable income is an important consideration; usually, creditors prefer applicants employed by the same employer for at least two years.

Alternatives

Qualifying for new credit is possible while receiving unemployment benefits. Some people have other forms of regular income such as monthly payments from real estate investments or retirement plans. Other people receiving unemployment benefits may qualify for loans using collateral such as undeveloped land or money in retirement accounts. Also, people with existing lines of credit, such as home equity loans, can tap into those funds while collecting unemployment benefits.

Non-Traditional Loans

Short-term loans, such as payday loans, are also an option for people collecting unemployment benefits. Payday loans, which feature staggering interest rates, usually require that the applicant have a checking account and recent paycheck stubs. However, some payday loan lenders may accept unemployment benefits as creditable income. Some online payday loan dealers do not require income verification. The Federal Trade Commission recommends that people avoid payday loans and other risky loans such as car title loans and pawn shop loans. The commission reports that payday loan lenders charge interest rates approaching 400 percent in some cases. At that rate people collecting unemployment benefits are often better off reducing household expenses and seeking public assistance for food and shelter than taking out the expensive loans.