Does Government Assistance Affect Your Credit?

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There are many different types of government assistance available for Americans who need a little help during tough financial times. This can include welfare programs in the form of food stamps or Medicaid, unemployment checks, and others. Whether you are on long term government disability, or just need to collect unemployment until you land a new job, you may have concerns about how receiving government assistance affects your credit.

The Good News

There are absolutely no government assistance or welfare programs that will harm your credit report. Applying for government assistance will not hurt your credit, and neither will accepting the assistance once it is granted. In fact, public assistance benefits are not reported to credit bureaus at all.

Of course, if you are below a certain income threshold, or are currently receiving government benefits, it may be more difficult to open new credit accounts. Many public assistance programs require that the applicant be below certain poverty levels, and this amount of income will not qualify the applicant for home loans, credit cards, or other forms of credit. If you are receiving unemployment, of course, your lack of a job may discredit you from qualifying for a mortgage.

People receiving government aid should also be mindful of the financial ramifications of any given program. For instance, unemployment checks are considered taxable income by the federal government, similar to any regular paycheck. However in many states, unless the unemployment recipient sets his withholding amount in place when he begins receiving benefits, those taxes will not be automatically deducted from the check. In that case, the recipient will owe all uncollected taxes the next time he files a tax return. If you are receiving government benefits of any kind, it’s important to research the programs and read all information the government provides to ensure that you are not caught by surprise.

Finally, the situations that led to your reliance on government benefits can certainly lead to credit issues. If your income level prevents you from making timely payments on a credit card, for instance, this will harm your credit score. For that reason, even though receiving government assistance won’t impact your credit report directly, these indirect impacts can harm your credit rating significantly.

Posted in Credit 101
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