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3 Steps to Protect Your Credit During Unemployment

Posted on September 26, 2010

When they say, “suffering a job loss” they’re not kidding. Losing a job is definitely a miserable experience that’s worsened by a bleak job market. If you’re going through a period of unemployment, it’s important that you keep your credit in good standing and repair is after things go bad. Many employers now use credit checks as part of the hiring process, so bad credit can keep you unemployed.

Sign up for unemployment benefits. If you lost your job through no fault of your own, you may be able to collect an unemployment check through your state’s unemployment office. In some states, you can get unemployment for up to 99 weeks. Make this money stretch as far as you can.

Unemployment checks are sometimes barely enough to cover all the expenses, but stay current on all your credit cards and loans, as much as you can. If you foresee problems making your payments, contact your credit card issuer and your lenders for hardship options. You might also contact a consumer credit counseling agency for help lowering your credit card interest rates and payments. Staying on top of your payments is key to protecting your credit and credit repair.

Don’t rely on credit cards. If you start using credit cards to make ends meet, you’ll soon find yourself with a credit card balance that’s too high to pay. Two missed payments is all it takes for credit card issuers to increase your APR to the penalty rate, which is often 30% or more.

Pretend like your credit cards don’t exist, except when it comes to sending your monthly payment. Minimum payments are acceptable during this period of time. You can make an exception for job-hunting expenses and basic living needs, but only when absolutely necessary and completely unavoidable.

Order your credit report for free. You probably already know that you can order a free credit report through, but did you know you can also get one if you’re unemployed and plan to look for a job soon? All three of the credit bureaus are required to give you this courtesy “job-hunting” credit report under the Fair Credit Reporting Act.

Prospective employers are required to notify you before they check your credit report. If you keep a watch on your credit report, you won’t have to worry about what your hopefully future employer will find on there. But if you know you have credit trouble that can keep you from getting the job, it might help to explain them before the employer does the credit check.

Put credit repair on hold. Credit repair requires time and money. Two things you may not have much of while you’re unemployed. You might continue with simple efforts like credit report disputes, but consider putting some of your more labor-intensive credit repair efforts on hold until you get a new job. In the meantime, it may make more sense to maintain a holding position on your current credit and keep additional problems at bay.

While you’re looking for a new job, consider making some extra money by holding a yard sale or selling things on eBay. Avoid cash advances and payday loans which are nearly impossible to repay while you’re unemployed.

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