If you find yourself suddenly or unceremoniously unemployed, take heart. With planning, proactive communication with creditors and a dedication to smart spending, you can protect your credit after a job loss — and safeguard your long-term financial future.
How to Survive Unemployment Financially
Losing your job wasn’t part of the plan, and you’re probably wondering how to survive unemployment financially.
If there’s good news in this scenario, it’s that getting fired isn’t one of the five factors that impact your credit score. However, what will impact your credit score is missing payments.
After your job loss, it’s vital that you review and inventory your spending to categorize necessities and extras. While it’s a bummer to cut the non-essentials, such as dining out or your Netflix subscription, the best way to keep from spiraling down into debt is to cap your spending — and stick with your plan.
Prioritize Secured Debt
Next, prioritize what needs to be paid first, and then include the payment dates in your budget schedule.
Secured debt, which is your mortgage or auto loan, should be your priority. Missing a mortgage or auto loan payment could lead to losing your house or car to voluntary or involuntary repossession, which will stay on your credit report for seven years.
Avoid Taking on More Debt
Even if you’re collecting unemployment, it can be hard to pay the bills. But taking out a loan, asking for a credit card limit increase (and using it all) or opening a new credit card and racking up more debt isn’t recommended for several reasons.
- More debt, more payments: Payment history is 40% of your credit score, so late or missed payments will drag down your numbers.
- Your credit utilization ratio skyrockets: More debt impacts your credit utilization ratio, which accounts for 35% of your credit score.
- Not only will brand new credit cards or loans pile on more debt – if you max them out, they will lower your credit age, which accounts for 10% of your credit score.
- Hard inquiries increase: Each time you request a new credit card or loan, the creditor or lender conducts a hard inquiry, which accounts for 5% of your credit score. Too many hard inquiries within a short amount of time can damage your score.
Will Credit Card Companies Work With Me If I Lose My Job?
Ideally, make the minimum payment by the due date each month. If you can’t do that, contact your credit card company. They have the ability to work with you on a payment plan. They are most inclined to do so if you have good credit and contact them before your payments are 30 days late.
The payment plan, which is also known as a hardship plan, usually provides benefits like a lower interest rate, lower fees and penalties, smaller minimum payments and a set payment schedule. The specific structure of your hardship plan is set by the creditor’s discretion.
Participating in a hardship plan doesn’t have a negative impact on your credit score, but if there’s a note about it from the creditor on your credit report, it may be interpreted as a warning signal to other creditors and lenders.
While credit card companies and lenders are often sympathetic and flexible in the wake of a job loss, ultimately, it’s your responsibility to pay back your debt. With a proactive approach to curbing spending, along with a manageable payment plan, you can take charge, protect your credit and secure your long-term financial health.