Will unemployment affect your credit?

Unemployment can cause a lot of damage to a person’s repertoire. Losing your job can cause severe problems for you, since you might have to borrow money from someone, or ultimately resort to taking a loan. Most houses run on a monthly income, and usually people do not really have a lot of money to spare.

If you haven’t planned properly and have been unable to save a decent amount of money for yourself in times of need, taking a loan might be the only option available to you in case you lose your job. However, does getting a loan during unemployment have a negative impact on your overall credit score? Let’s find out!

The credit score impact

Your credit score is affected by a number of important factors, the most important of which is the time period in which you are able to return the loan. As long as you keep on making regular payments of your loan, your credit score will not be affected.

However, when a person is unemployed, they are usually unable to make a monthly commitment. Nobody knows when they might get a job back, regardless of how hard they try. It might take a month or it might take a year, and therefore, taking a loan during times of unemployment usually results in a negative impact on your credit score.

Usually, failure to pay the loan on time results in an increase in the amount of interest, as well as extra penalties and payments. Moreover, your credit score begins to take the hit as time continues to pass and no payments are made. 

The types of loans

Usually for people who are going through unemployment, the chances of getting a loan aren’t great, since banks are quite reluctant to lend you the money. Obviously, since there is no guarantee as to how and when the payments will be made, creditors are usually quite worried. Moreover, small loans such as payday loans and gap loans are completely unavailable.

However, you can get loans from various credit companies that provide them if there is a guarantor for you. The only problem with this type of a loan is that the amount of interest charged is much higher as compared to standard loans, and you are also asked to sign an agreement which states that when you do find a job, a certain part of your salary will be accredited directly to the company, so that you do not fail to make payments on time again.

The longer you stay unemployed, the greater will the impact on your credit score, which is why you should always try to save money so that you never have to worry about taking loans in times of need.