 |
| © Getty Images Man sitting on steps next to briefcase with head in his hands. |
By Maurie Backman, The Motley Fool
In the course of the pandemic, millions of Americans have filed for unemployment benefits after losing their jobs. In recent weeks, new jobless claims have been coming in lower, but that doesn't mean layoffs are no longer happening.
If you've lost your job, one of the first things you should do is apply for unemployment benefits. It can take time for your state to process your claim, and the sooner that happens, the sooner you'll get some money coming in to help pay your bills.
Now you may be worried that collecting unemployment benefits will impact your credit score. So here's some good news -- the amount of money you earn has no bearing on your credit score whatsoever. Your income could go from $80,000 a year to $8,000 a year, and that alone won't cause your credit score to drop.
Similarly, collecting unemployment isn't regarded as financially irresponsible behavior. When you lose a job through no fault of your own, you're entitled to jobless benefits so you can cover your living costs while you look for work. Being on unemployment won't impact your credit score in the slightest.
But if you've landed in a situation where your unemployment benefits are your only source of income, then your credit score could be impacted indirectly. Here's why.
Can you get by on unemployment?
Unemployment isn't designed to replace your entire missing paycheck. Rather, it will only replace a portion of it. Furthermore, there's a maximum weekly benefit you're allowed to receive, the amount of which will depend on the state you live in. If you're a higher earner, your state's weekly unemployment benefit may be well below the amount you used to collect in your paychecks.
Now if you have a lot of savings to dip into, you might manage to keep up with your bills while you're looking for work and are limited to unemployment income. But if you don't have savings, and your jobless benefits become your sole source of income, then you could end up falling behind on your bills. Once that happens, that lateness could get reported to the credit bureaus, resulting in a hit to your credit score.
Furthermore, if your unemployment benefits can't cover all of your expenses, you may have to carry a credit card balance until you're back to work. But too high a credit card balance could also result in credit score damage.
Managing your expenses on unemployment
If you're stuck living on unemployment benefits alone while you look for work, don't hesitate to ask for relief. Your landlord might let you defer some rent payments, and if you have an outstanding loan, your loan servicer might allow you to do the same on a temporary basis.
At the same time, it pays to comb through your budget and see if there are any expenses you can cut back on temporarily. You might be able to cancel your cable service for a few months and free up that cash. The more cash you free up, the less likely you'll be to fall behind on bills or rack up large amounts of credit card debt.
Read more: 5 Mistakes That Sabotage Your Company's Bank Credit Score
Losing a job can be a major blow. The good news is that unemployment benefits can help you get through a layoff by serving as a financial lifeline -- and collecting them won't do any damage to the credit score you've worked hard to build.
See more at The Motley Fool
