If you’re currently collecting unemployment, you may be worried about the impact on your credit reports. Good news: your income isn’t reflected on your credit reports. However, getting approved for a car loan isn’t likely to happen if unemployment checks are your only income source.
Unemployment Checks and Your Credit
Although you’re receiving unemployment benefits, as long as you’re keeping up with your bills, your credit score won’t be negatively affected.
It’s true that your credit reports contain personal information, but whether or not you’re employed isn’t listed. Filing for unemployment also doesn’t affect your credit score.
Some of your past employers may be listed on your credit reports, but some may not be on there at all. It's also true that some employers might do a soft inquiry during the hiring process, which they need your permission to do, but this also doesn’t lower your score.
The only real risk you run while you’re collecting unemployment is letting your credit slip. Missing payments or late payments reported to the credit bureaus can remain on your credit files for up to seven years, and hurt your credit score.
Additionally, applying for new credit with unemployment as your primary income means you aren’t likely to get approved by any lender – even a bad credit auto lender.
New Credit and Unemployment
If you talk to a lender about applying for a car loan, you’ll find that temporary income like unemployment can’t be used to meet the income requirement.
With bad credit auto lenders, the minimum monthly income required to get approved is typically around $1,500 to $2,000 before taxes. Even if you’re collecting enough unemployment to qualify, that income is still temporary.
When you apply for a car loan, you must prove that the income you declare is going to last for the duration of the loan. The average time frame for collecting unemployment is usually only six months, which is much shorter than any auto loan.
If you have additional income, you may be able to use it to qualify for financing. These sources of income can include Social Security, alimony, and pensions, and could help you get approved by a lender. But again, they need proof you’ll continue to receive that income over the entire loan term.
Alternative Options for Getting a Car
While unemployment checks can’t be used as income when you’re applying for new credit, there’s always the option of buying a car from a private seller. Doing this has its risks, but also its fair share of benefits.
Private sellers are usually motivated to sell, since they’re willing to list the vehicle and do all the work themselves. However, there’s always the risk of overpaying, or buying a car that isn’t as reliable as it looks.
A private seller likely doesn’t care about your credit score if you’ve got the cash. If you can manage it, you might try saving as much as you can from your unemployment checks to pay cash for a vehicle from a private seller, or even a dealer.
If you really need a car, buy here pay here (BHPH) dealerships may be worth looking into. BHPH lots have in-house financing, meaning the dealer is also your lender. The biggest plus to these dealerships, even though they only sell used vehicles, is that they don’t normally check your credit score during the financing process.
Often, these dealers are more concerned with your ability to make the monthly/biweekly/weekly payments, and may not check your credit to determine your eligibility for an auto loan. They still may not accept your unemployment checks as income, however.
Additionally, they may not report loans or timely payments to the major credit bureaus, meaning a good payment history on this type of loan won’t improve your credit score.
Look to the Future
While unemployment checks are temporary, your credit score sticks with you. Your current employment status won’t hurt your credit, but missed or late payments due to insufficient income can cause damage.
If you’re already struggling with credit issues and are looking for financing on your next car loan, it's never too early to start your research and start saving for a down payment. Bad credit auto lenders almost always require a down payment, and getting some cash put away for that can increase your chances of a car loan approval.
When you’re ready for your next vehicle, look to us at Auto Credit Express. We connect credit-challenged borrowers to dealerships that work with bad credit lenders through special finance departments. A subprime auto loan can also improve your credit score with a good payment history. We can help by matching you to a local dealer for free with our car loan request form.