During a tough economy, strange questions such as this one come to the forefront but the answer is not so cut-and-dry. Unemployment can affect your credit, but probably not in the ways you might expect.

Most people out there – the uninformed masses – know very little about the credit system in the United States. From credit cards to mortgages to interest rates and investments, the products and services of the financial world are often foreign to the average American consumer.

One of the biggest mistakes people make is to take their assumptions about how unemployment insurance affects their credit as absolution.

Indeed, being on unemployment may ultimately affect your credit but they are not related to each other. Your credit score is affected by your behavior and not the status of your employment. The things that affect your credit score include:

  • Timeliness of payments
  • Number of open accounts
  • Total amount of debt you owe
  • Amount of credit available
  • Credit-to-debt ratio
  • Number of accounts in default, delinquencies, foreclosure, or other negative status

Of all of these things (which may belong to a much longer list), the most influential factor is the timeliness of your payments. By just missing one payment your account will become delinquent. If you can correct this right away it will not necessarily affect your credit score, or at least it will not ruin your score significantly.

As you begin to miss more and more monthly payments, though your credit score will also begin to suffer more and more.

Not only is this bad in the long run, in terms of your credit score, obviously, but you will continue to rack up debt and have to pay hefty fees for missing payments (and eventually for going over your credit limit).

Obviously, then, this is the single most influential aspect of credit ownership for a person who is facing unemployment. When you are employed you can overlook one payment and get back on track quickly.

You have the ability and resources to negotiate with the credit card company in order to minimize the damage.

When you are unemployed, though, you will either have no income or be on a fixed income and do not necessarily have the tools or resources to keep your payments on track.

Should you miss one payment, then, you will quickly fall into a spiral of debt from which it will be extremely difficult to escape. Basically, then, being unemployed will not directly affect your credit.

Losing your job will not cause your credit score to drop instantly; but not properly addressing the situation will, however. What you need to do then, whether you expect to lose your job or are at the peak of your career, is to protect yourself in the event that you may face financial hardship in the near or distant future.

With that in mind you can start by, first of all, by starting an emergency fund that is separate from your checking and savings accounts. Most financial planners advise that you save up at least six months of rent and bills just in case you lose your job, face a medical emergency, or have to deal with another family issue.

It is better, of course, to save up nine months to a year’s worth of bills and you do this by simply making a deposit every month and never touching it, save for emergencies.

Another option is make the minimum payments for as long as you possibly can. While it will not necessarily improve your credit it won’t hurt you either.

Finally, you may also want to look into transferring your balances to a 0% balance transfer credit card. This could help you save some money while also making the minimum payments. When you get back on your feet start making bigger payments till the balance is paid off.