A few months ago, I was talking to a friend who had recently been laid off from her job. She was stressed, frustrated, shocked, and scared. On top of the pressure of looking for a new job, she was also worried about applying for unemployment. She was worried that filing for unemployment would negatively affect her credit score. My immediate reaction was that there was no way utilizing unemployment benefits could hurt your credit score. But at the same time, I wasn’t completely sure. I had never heard of that idea. So I decided to look into it and share my findings with you!
What is Unemployment?
Unemployment benefits are benefits from the government that protect you if you unexpectedly lose your job. This is a joint program between the federal government and states. It was created to support citizens when they lose their job “through no fault of their own”, while they are searching for a new job. Basically, you get a check from the government each week once you’re unemployed.
It’s important to know that unemployment benefits do not completely replace the salary you were earning. In fact, this income is only a fraction of the amount you were making at your most recent job. Plus, your state probably has a maximum amount that you’re able to receive each week. It likely won’t sustain you for long (the time limit is about 26 weeks, depending on the state), but it’s a good safety net in the short-term.
When Are You Eligible for Unemployment?
You were laid off from your job.
You were on contract at your job and the contract ended.
You’re actively applying for new jobs. You’re required to prove that you’ve been job searching while you’re on unemployment benefits.
Your full-time job was reduced to part-time.
When Are You Not Eligible for Unemployment?
If you quit your job. However, if you can prove that you quit your job due to employer misconduct or mistreatment, you may still be eligible for unemployment benefits.
If you were fired for cause. This means you broke company rules or committed a crime, so you were fired for it. Basically, this means it’s your fault you’re unemployed.
You didn’t work long enough at your place of work.
You’re still getting paid. Sometimes you’ll get a severance package or get paid out for your vacation days. You can’t file for unemployment until after you’re no longer being compensated by your now former employer.
How Can You File for Unemployment?
Unemployment benefits are given out by your state. If you live in a state that is different from the state where you work, you should file for unemployment in the state you work in. You should contact your state’s unemployment program as soon as possible after becoming unemployed. It generally takes two weeks or so after you file your claim to receive your first check.
In order to maintain your eligibility, you must be actively searching for a new job. You will have to provide the names of the companies that you’re applying to each week in order to get your check. Typically, you have to show that you applied to three different jobs during the week. However, some people are exempt from this, depending on their situation.
Does Unemployment Actually Affect Your Credit Score?
No! If you file for unemployment, it will not show up on your credit report and therefore will not impact your credit in any way. If you need financial support while you’re looking for a new job, you should absolutely take advantage of unemployment benefits. That’s what they are here for! Don’t let your fears about your credit score stop you, because your credit score will be fine as long as you’re paying your bills. And don’t let shame or judgment stop you either. We live in a society, and unexpected things happen all the time. There is no shame in accepting the help that is available to you.
Of course, actually being unemployed can ultimately impact your credit score. This happens if you are unable to pay your bills and missed payments are reported to the credit bureaus. Situations like this are why it’s so incredibly important to have an emergency fund to protect you and cover your bills.
Have you ever filed for unemployment benefits? How was your experience? Was it worth it?
Certified Financial Education Instructor. Feminist and financial coach for women. Founder of Money Circle.