Does Unemployment Affect Credit Score?

A person's credit score is a calculation -- made using formulas developed by credit reporting agencies -- of an individual's creditworthiness. Credit scores have a number of uses. Although primarily used by lenders to determine if and at what rate to issue a borrower a loan, they may also be used by employers or landlords to make an estimate of an individual's reliability. Unemployment does not affect a person's credit score.

Unemployment Benefits

When a person loses his job, he may or may not be eligible for benefits issued by the government to the unemployed, colloquially referred to as unemployment benefits. These benefits are only temporarily provided to the worker while he looks for a new job. However, a public record of who is receiving unemployment benefits is unavailable. Therefore, credit reporting companies cannot learn who is receiving these benefits.

Credit Report

Credit reports -- the basis for credit scores -- include a variety of information about a person's financial status and credit history. However, credit reports include absolutely no information about a person's current employment or his income. Even if a credit reporting agency were to learn that a person was unemployed, it would not place this information in a credit report. Therefore, unemployment cannot affect a person's credit score.

Lending Decisions

Credit scores are determined using only information included within a credit report. If information -- such as the fact that a person is without a job or is receiving unemployment benefits -- doesn't show up on the report, it will not have any impact on the person's credit score. However, individual lenders may still ask about a prospective borrower's employment status and may still make lending decisions based on this information.

Considerations

Although being unemployed will not directly affect a person's credit score, it might indirectly affect it if the person goes deeper into debt due to his reduced income. If the person takes on too much debt or defaults on his debt, then his credit score will likely go down. Unemployment can make it difficult for the person to get out of this hole. making it an indirect cause of a bad credit score.