One of the worst things about getting laid-off is having to worry about money and how you are going to pay the bills. It adds even more stress to your life when you’d rather be focused on getting hired for a new job fast. However, losing your job will not necessarily endanger your credit rating, as credit agencies don’t factor your employment status into the calculation of your score.
Of course, if the loss of income impacts your ability to pay your bills or pay them on time, then your credit rating will suffer. There are steps you can take to keep your credit rating as intact as possible. If you’re proactive, you may be able to minimize the impact of being out of work on your credit.
Review these tips can help you to minimize the impact of unemployment on your credit score.
12 Tips for Keeping Your Credit When You’re Unemployed
1. Create an emergency fund while you are still employed that is equivalent to at least six months of your payment obligations so you can weather a period of unemployment. The average amount of time required to secure a new position after a termination averages about 3 – 6 months but can extend to 12 months or more.
2. Start collecting unemployment right away. Don’t wait to file for unemployment compensation. Apply for unemployment benefits immediately after losing your job. It won’t be as much as your paycheck, but it will help pay the bills.
3. Contact your creditors directly to explain your situation and explore options for making acceptable payments. A good faith effort on your part might forestall a report by creditors to credit agencies or the movement of your debt to collection agencies.
4. Don’t close credit card accounts while unemployed since that can do further damage to your credit rating. Your credit rating is calculated by determining the ratio of your outstanding balances to the total credit available. Closing accounts will reduce your total credit available.
5. Don’t open several new credit card accounts in a short time period, because agencies may lower your rating. Avoid using credit cards when shopping. Pay with cash or by check and forgo as many optional purchases as possible. Last year’s wardrobe will have to suffice.
6. Pay at least some of your bills. If at all possible, be sure to make at least the minimum payment with each monthly bill.
7. Defer your student loans. Contact student loan creditors and request an economic hardship deferment. If it’s approved, you can hold off on payments for up to three years. Here’s information on eligibility for student loan deferments.
8. Prioritize your debt. In most cases, your mortgage and car payments will have the highest priority, so you can stay in your home and can continue to use your car to find employment.
9. Start a job search right away. Commence a vigorous and effective job search as soon as possible after you lose your job to minimize the length of time that you are out of work.
10. Get credit counseling. Utilize a credit counselor to help you restructure your finances during unemployment.
11. Consider taking on an interim job if you are ineligible for unemployment benefits. Even if you are eligible for unemployment compensation, you may be able to generate more income through interim jobs. The best interim jobs will be positions held during evenings and weekends that will not interfere with your job search for a more career-oriented opportunity. Do check to see how working will impact your unemployment benefits first.
12. Don’t be afraid to ask for help. Ask your family or friends for financial assistance. You won’t know if they can assist if you don’t ask.