Losing a job is bad enough, so minimize the damage to your credit By Jodi Helmer
Protect Your Credit During Unemployment
While polishing your resume, searching job boards, and meeting recruiters, it’s easy to ignore your credit score. But taking steps to protect your credit during unemployment makes it easier to recover financially and may even help you land a job.
Even if you’re not checking your score, prospective employers might. In 2010, 60% of HR professionals ran credit checks on some potential hires, up from 25% in 1998. Follow these seven tips to safeguard your credit if you’re unemployed or your job situation is unstable.
1. Consider Payment Protection
Payment protection insurance allows you to pause payments for a set period for a fee. It covers credit card balances, car loans, and mortgages.
“You won’t qualify after losing your job, so research your options now,” says Rodney Anderson, author of Credit 911: Secrets and Strategies to Saving Your Financial Life.
Read the fine print to understand what protection you get and the cost.
2. Request a Credit Report
Before sending resumes or attending interviews, order your credit report from the three major bureaus. You’re entitled to one free report per year through AnnualCreditReport.com.
“Knowing your credit report helps explain any red flags during interviews,” Anderson says.
If your report contains errors, you can correct them. You can also attach a 100-word letter explaining accurate but potentially damaging information.
3. Stick to Cash
Without a steady paycheck, charging everything is tempting. Pay with cash to control spending and keep your available credit for emergencies.
Avoid cash advances on credit cards—they include extra fees and high interest from the moment you take the cash.
4. Make Minimum Payments
Focus on paying at least the minimum on credit cards to maintain cash reserves.
“Now is not the time to pay off balances in full,” says Leslie Linfield, Executive Director at the Institute for Financial Literacy.
Late payments—even slightly late—can harm your credit. One 30-day late payment may drop your score by 100 points.
5. Communicate With Creditors
If you struggle to pay bills, call your creditors.
They may offer lower interest rates or more affordable payment plans. “Creditors want to work with you,” Linfield says.
Make the call before accounts go to collections. Once in collections, your credit score takes a huge hit.
6. Defer Debts
Student loans are easiest to defer. Request an “economic hardship” deferment to pause payments and stop interest on the principal.
“If you’ve been unemployed for 30+ days, start the deferment process,” Linfield says.
You may also defer mortgages or car payments for 30–90 days, giving temporary breathing room. Deferment doesn’t affect your credit score.
7. Avoid Applying for New Credit
It’s tempting to apply for credit cards during unemployment. Don’t.
“The chances of approval are low, and every inquiry can hurt your score,” Anderson says.
New credit increases the risk of accumulating debt you can’t afford to repay.
