According to the Bureau of Labor Statistics, 5.5 million job separations occurred in May 2019 alone. Of those, approximately 3.4 million people quit their jobs during the month. Then there are 1.8 million that were laid off or discharged. This usually means fired with cause. While those that quit may have known that they were going to leave, employees who are laid off or terminated might not be prepared. As a result, they have to make critical financial decisions. These include how to protect their credit, while in crisis-mode, and that isn’t easy. Luckily, there are certain steps that are effective for protecting your credit. If you’ve lost your job, here’s what you need to know.
Your Income Change Doesn’t Impact Your Score
First and foremost, it’s important to understand that your income level has no impact on your credit score. Your credit report only includes details about your credit history, such as the amount you’ve borrowed, whether you made payments on time, and your credit utilization.
Losing your job doesn’t inherently impact your credit score. However, if a job loss causes you to miss payments, relying heavily on credit cards (increasing the size of your debt), or similar actions, those could affect your score.
Check Your Credit Accounts
While you don’t necessarily want to contact your creditors immediately, particularly if you aren’t in immediate risk of falling behind, you should check your credit accounts to see if you have any form of payment protection in place. Many lenders offer credit protection as a paid-for service, allowing you to pause the payment requirements if you become unemployed.
If you believe you may have signed up for payment protection, check your statements to see if you have paid premiums for the service. It may be present on your credit card, auto loan, mortgage, or other accounts, so it’s wise to take a look. Then, if you have it, you can contact that creditor and use the payment protection to preserve your credit, at least for a period.
Apply for Unemployment
Regardless of the reason you lost your job, it is always wise to apply for unemployment. While many people who are fired for cause won’t qualify, most others will. However, even if you aren’t sure that you will be approved, it is wise to initiate the process in case you are incorrect.
While unemployment payments won’t equal your former salary, they do give you a source of income in the interim. Any additional incoming money can be beneficial. Just make sure you learn the rules of the program, such as any job search requirements, to maintain your eligibility.
Create a New Budget
When you lose your job, you need to adjust your budget immediately. Even if you have a healthy emergency fund, reviewing your expenses allows you to make adjustments to limit the likelihood that you’ll need to rely on credit cards or end up unable to make a payment.
Examine each of your bills, including everything from utilities to auto insurance to credit cards, and record the minimum payment amount. The goal should be to make minimum payments on every bill as that can preserve your credit.
A single 30-day late payment can cause your credit score to fall by up to 100 points. Plus, the derogatory mark will remain on your credit report for years. By aiming at the minimum payment numbers, you can prevent this from happening.
Once you allocate funds for the minimum payments, you can use the rest for other expenses. While you may have to adjust what you buy for groceries, limit you driving to only essential times, and take similar steps to stretch your money, it is worth it if you are able to preserve your credit while unemployed.
Speak with Your Creditors
If you have a new budget and know that you won’t be able to make your monthly payments, it’s time to talk to your creditors directly. Find out if there are any programs that can help customers experiencing financial hardships, as many would rather work with you and get something than tell you no and get nothing.
Deferments Help in Protecting Your Credit
Additionally, some debts can be deferred when you experience a period of unemployment. Federal student loans usually have deferral or forbearance options, which can help you reduce or eliminate the need for a payment for a period.
Dealing with a job loss is always difficult. But, if you follow the steps above, you can work to keep your credit score intact until you find a new position.
Have you ever lost your job? What steps did you take in protecting your credit? Tell us about your experience and share your tips in the comments below.
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