Losing a job can be a huge blow to a person's finances. Without a steady source of income, consumers can struggle to pay for their mortgage, credit card and other bills. This can result in foreclosures or collections notices for missed payments. Experts agree that if individuals are laid off from their job, they should understand what happens to their credit score during this time.
John Heath, directing attorney for credit repair consumer company Lexington Law Firm, answered a few common questions about this topic and provided a few ways how consumers can go about fixing it.
Q: Can getting laid off directly affect a credit score?
A: No, getting laid off will not directly affect your credit score. The indirect consequence of no longer having a paycheck will affect your ability to pay your mortgage payment, rent payment, car payment or credit card payment, which in turn will adversely affect your credit score.
Q: Does job history show up on a credit report?
A: Previous employers may show up on your credit report. These listings will, on many occasions, not be updated by the credit bureaus. You may have a current employer reported by one bureau and an employer from several years ago reported by another.
Q: Are severance payments or unemployment checks reflected on a credit report?
A: No. However, if the severance or unemployment assists you in covering your monthly payment obligation, that will be reflected on your credit report.
Q: Can a consumer still receive unemployment benefits after finding a new job?
A: No. You are eligible to continue collecting unemployment compensation for the three weeks prior to your start date. However, you should stop claiming benefits after your first week of work in your new job.
Q: What should consumers do after they get laid off? Who should they contact?
A: First, take a deep breath. Second, make an application for unemployment benefits and register with your local state employment office. This office will most likely offer assistance in updating your resume and interview skills. Finally, contact your creditors to see if there is an opportunity to defer or reduce payments on your obligations during the period in which you are unemployed.
Q: Are there any programs besides unemployment that can financially help a consumer during this time?
A: Look to community outreach programs. These programs or services may be offered by private organizations such as employment agencies and faith-based programs, including the Catholic Community Services and LDS Employment services.
Q: Do credit card companies offer any leniency for card payments while a consumer is unemployed? Does this leniency apply to collections or any other lenders as well?
A: Yes. Some lenders and credit card companies may offer deferment and reduced payment opportunities if you are unemployed.
Q: What is the worst financial action a consumer can take during this time?
A: Panic. Instead, review your options and develop a plan for moving through this time period. Avoid taking on additional debt if you can help it. It may be difficult to climb out from this additional debt after you have found new employment.