Will Being on Welfare Hurt Your Credit?

Thousands of low-income Americans receive financial assistance from the government, also known as welfare. Welfare takes many forms, including Temporary Assistance for Needy Families, food stamps and programs for medical, housing and heating assistance. Welfare assistance applicants must meet specific income and resource criteria to receive benefits, and, in most cases, welfare is designed to be treated as temporary assistance, not a permanent source of income.

Welfare and Credit Ratings

Because of the temporary nature of welfare benefits, they do not affect your credit. According to the Fair Isaac Corporation, the company that developed the formula used for calculating credit scores, U.S. law prevents welfare or public assistance benefits from being included in credit score calculations. If you apply for or receive welfare, it is not reported to the credit bureaus and thus will not appear on your credit report. In addition, state welfare offices do not check your credit report when you apply for benefits.

Determining Credit Scores

Your credit score is calculated primarily on your use of credit over time. The amount you owe, the amount of credit you have available, your payment history, the types of credit you have and the number of times you have applied for new credit are included in your credit score, which can fluctuate from month to month. To keep your score high, keep your credit balances low and pay on time every month.

Welfare and New Accounts

While receiving welfare benefits will not directly affect your credit, it will probably prevent you from opening new credit accounts. To receive welfare benefits, you generally must meet income guidelines. Depending on the type of assistance you are seeking and where you live, the income guidelines range from 100 to 200 percent of the federal poverty guidelines for your household size. In most cases, this level of income will not meet the requirements set by lenders for minimum monthly household income.

Lowering Your Debt

If you qualify for welfare benefits and you are having trouble making your monthly payments on credit cards and loans, you can receive help to meet your obligations and protect your credit rating. Call your creditors and explain your situation, and request a workable payment plan. Your credit line may be reduced or closed to new charges, but you will prevent late or missed payments from showing up on your report.

If you have student loans, you may qualify for deferment or forbearance, which will temporarily suspend or lower your monthly payments until you can afford to pay more. If you are overwhelmed with debt and creditors are calling, call a nonprofit credit counseling firm for help with reducing your debt.