A forbearance generally does not directly hurt your credit if your lender reports your account as "current" or "under forbearance" to the credit bureaus. However, your credit could be negatively affected if the payments are reported as delinquent.
How Forbearance Can Affect Your Credit
The impact of forbearance on your credit score primarily hinges on how your lender communicates your payment status to the three major credit bureaus: Experian, Equifax, and TransUnion. Loan forbearance can impact your credit depending on how lenders report relief payments to credit bureaus.
When Forbearance Typically Doesn't Hurt Your Credit
Many types of forbearance shouldn't hurt your credit. This is usually the case when:
- Proper Reporting: Your lender reports your account as "current," "payments deferred," or specifically "under forbearance" to the credit bureaus. This means your payments are paused or reduced, but your account is still considered in good standing.
- Proactive Arrangement: You arrange the forbearance before you miss any payments. This shows you're taking proactive steps to manage your financial situation.
- Widespread Programs: During periods of widespread economic hardship, such as the COVID-19 pandemic, specific government-backed forbearance programs (e.g., for federal student loans or mortgages under the CARES Act) often mandated that lenders report accounts as current, even during forbearance.
When Forbearance Could Hurt Your Credit
If payments are reported as delinquent, forbearance may harm your credit. This negative impact can occur if:
- Delinquent Reporting: Your lender reports your payments as "delinquent," "late," or "missed" during the forbearance period. Even if you have an agreement, incorrect reporting can severely damage your credit score.
- Retroactive Forbearance: You enter forbearance after you have already missed one or more payments. In such cases, the previously missed payments might remain on your credit report as delinquencies.
- Private Lenders: Some private lenders might have less forgiving policies or reporting practices compared to federal programs or regulated institutions.
- Agreement Violation: You fail to adhere to the terms of the forbearance agreement (e.g., you miss a partial payment you agreed to make).
The table below illustrates the common credit reporting scenarios during forbearance:
| Reporting Status | Credit Impact | Example |
|---|---|---|
| "Current" or "Forbearance" | Generally Neutral or No Harm | Your mortgage payments are paused, but your account status remains "current" on your credit report. |
| "Delinquent" or "Missed" | Potentially Negative or Harmful | Your auto loan payments are reported as 30, 60, or 90 days late, causing your credit score to drop. |
Protecting Your Credit During Forbearance
Being proactive and vigilant is crucial to minimize any potential negative impact on your credit during a forbearance period.
- Get It in Writing: Always ensure your forbearance agreement is in writing. It should clearly state the terms, duration, and crucially, how your payments will be reported to credit bureaus.
- Communicate Clearly: Confirm with your lender verbally and in writing that your account will be reported as "current" or "under forbearance" and not as "delinquent."
- Monitor Your Credit Report: Regularly check your credit reports from all three major credit bureaus for free at AnnualCreditReport.com. Look for any inaccuracies or unexpected delinquent marks. If you find errors, dispute them immediately with both the credit bureau and the lender.
- Understand Repayment Terms: Be fully aware of what happens at the end of your forbearance period. Will you owe a lump sum? Will your loan term be extended? Will your monthly payments increase?
- Make Partial Payments if Possible: If your forbearance allows for reduced payments and you can afford it, making even partial payments can sometimes be beneficial, depending on your agreement.
Long-Term Considerations
Even if a forbearance doesn't directly hurt your credit score, there are other long-term aspects to consider:
- Future Lending Decisions: While not a direct hit to your score, some lenders may view a history of forbearance less favorably when evaluating future loan applications, even if reported correctly.
- Interest Accrual: In most forbearance agreements, interest continues to accrue on your loan balance, increasing the total amount you will eventually owe. This is not loan forgiveness.
- Repayment Plan: Preparing for the end of forbearance is critical. Understanding your new repayment schedule will help you avoid future financial stress and potential credit issues.
Forbearance is a temporary financial relief tool designed to help borrowers during difficult times. While it can be a lifesaver, understanding its potential credit implications and taking proactive steps to protect your credit is essential.
