How to protect your credit score if you lose your job

Over 36 million Americans have filed for unemployment since late March as a result of the coronavirus pandemic. It's an incredibly stressful time as people scramble to figure out how to pay the bills while looking for a new job.

But there's one thing you don't need to worry about: Filing for unemployment has no direct impact on your credit score. Credit bureaus and card issuers cannot see if your salary and income has changed, or if you've filed for unemployment, unless you give them explicit permission (which isn't common).

However, there are a few ways that unemployment can indirectly impact your credit score. Your unemployment check is typically smaller than your normal paycheck, so it's likely you'll need to adjust your spending. Putting expenses on your credit card is one way to get by when your income takes a dramatic hit, but you need to be careful how you use your card so you don't end up in major debt and damaging your credit score.

CNBC Select spoke with Leslie H. Tayne, a debt-relief attorney and founder of Tayne Law Group about how unemployment can affect your credit score and how to protect your credit during job loss.

Filing for unemployment does not directly hurt your credit score. However, being unemployed can lead to scenarios that do. The main culprit? Overspending.

"If borrowers increase the use of credit card spending while unemployed, their credit utilization will increase and that can signal an increased amount of risk to lenders," Tayne tells CNBC Select. 

Additionally, you might miss payments because you're earning less and juggling the same bills. "This will also be a red flag to creditors that you're having a hard time managing your debt and paying your bills," says Tayne.

Unemployment typically pays you a percentage of your normal take-home pay, so you should aim to significantly reduce wherever you can. And if you do have a balance on your credit card, be sure to always make at least the minimum payments. Making on-time payments is the most important factor for your score.

If you can't make your minimum payments, ask your card issuer if they are offering a financial assistance program, such as forbearance or deferment, during the coronavirus pandemic. (Read more about what help card issuers are offering.)

These credit cards don't charge late fees:

• Petal® 2 "Cash Back, No Fees" Visa® Credit Card (good for applicants who are building credit)
• The Apple Card
• Citi Simplicity® Card (good for people with an excellent credit score; see rates and fees)

Note: Though you won't be charged a late payment fee (usually up to $40), your card issuer must eventually report your late payment to the credit bureaus if it goes unpaid for a period of time (usually after 30 days). While using a no-late-fee credit card during unemployment could keep you from getting hit with charges, your credit score will eventually dip if you keep skipping payments.

Credit bureaus and card issuers cannot see if you've filed for unemployment unless you give them explicit permission. This only happens if your card issuer notices out-of-the-ordinary behavior from you, such as a major jump in your spending, abruptly switching to only paying the minimums or other red flags. When your card issuer sees such activity, it may request a manual review of your account.

"American Express is notorious for what they call 'financial reviews,' where they disable all accounts you have with them until you provide them with requested information," says Tayne.  

Card issuers don't reveal how often financial reviews happen, says Tayne, but there are a couple of behaviors that can trigger a review.

One common cause is a significant increase in unusual spending that's not typical for the cardholder. Another so-called risky behavior is if the cardholder is spending larger amounts of money on a platform like Paypal or Venmo. This might signal to your card issuer that you're facing a cash shortage.

When your issuer conducts a financial review, you'll be asked a few questions related to your employment status and spending. You normally have up to 14 days to present the requested documents. The issuer may also include a request for bank statements to show that you're still receiving paychecks and have the means to repay your debt.

Your card issuer has the right to drop your credit limit, if it's determined that you can't afford to pay your credit card bills.

Credit bureaus and card issuers will not be able to see that your source of income has changed unless you notify them. According to Tayne, this only really comes up if you apply for a new credit card after a recent job loss. 

"If you recently applied for credit and were honest about your employment status, that's one of the only ways for an issuer to be aware of your employment change," she explains. 

"Filing for unemployment cannot directly ding your score because it is not reported to the credit bureaus or a consumer's card issuers," explains Tayne. "The only public record reported to the bureaus is bankruptcy, judgments and public information."

While it's normal to worry, there's no need to be concerned that unemployment will tarnish your credit history as long as you maintain your good credit habits. Your credit report does not list your source of income (or income in general), nor does it show how much money you have in the bank.

Now that you know there's no need to worry, focus instead on maintaining your credit score by making on-time payments, keeping your spending low and refraining from opening a lot of new credit cards all at once while you look for a new job.

Information about the Apple Card, has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.

Petal 2 Visa Credit Card issued by WebBank.