Does Forbearance Affect Credit?

What Is Forbearance?

Forbearance is a short-term reduction or suspension of loan payments in response to your temporary financial hardship. Except in the case of federal student loans, which can qualify for automatic forbearance under certain conditions, forbearance is offered as a courtesy at the lender's discretion.

Forbearance is:

• Temporary: Forbearance periods seldom last more than 12 months, and you are expected to resume regular payments when forbearance ends. Some forbearance programs permit extensions after 12 months, but only if you can show extraordinary hardship.
• Subject to repayment: You are expected to make up for all payments that were excused during the forbearance period. This can take the form of a lump-sum payment, installments added to your regular monthly bill or payments tacked on to the end of your loan term. Additional interest charges may apply to these repayments.
• Something you must ask for: Lenders and loan servicers won't extend forbearance unless you request it. If you seek forbearance, they'll expect you to explain your financial hardship and provide evidence you'll be able to cover all repayments when forbearance ends. If your arguments are unconvincing, or if you have a spotty payment history or low credit scores, the lender may decline your forbearance request.

Learn more >> What Is Loan Forbearance?

Types of Forbearance

Forbearance may be available on the following types of credit.

• Mortgage loans: Mortgage lenders may grant forbearance as a means of avoiding the costly foreclosure process. They typically only do so for borrowers with good credit who can demonstrate that their financial hardship will be short-lived, and that they will have the means to resume payments after forbearance ends.
• Credit cards: Credit card hardship programs are a form of forbearance that can include temporary suspension of payments, reductions in your annual percentage rate (APR), forgiveness of late fees or establishment of an installment plan for paying off balances over time. Hardship programs are not available from all card issuers and, as is the case with other forms of forbearance, issuers that offer hardship programs may decline requests for them based on creditworthiness or other criteria.
• Student loans: Issuers of federal student loans must provide mandatory forbearance under a variety of circumstances, including full-time medical or dental residency, enlistment in AmeriCorps or the National Guard, or if the loan payment equals or exceeds 20% of a borrower's gross monthly income. Federal student loan issuers may also grant general forbearance for financial hardships that don't trigger compulsory relief, including loss of income, medical bills and other financial hardships.
• Auto loans: Payment relief on an auto loan usually takes the form of payment deferment—skipping payments, which are added to the end of your loan repayment schedule. Interest typically continues to accrue during this process, so extending the payback term by one or more months increases the total cost of the loan. Qualifying for auto loan deferment may require proof of financial hardship, but some auto loans have a built-in "skip a payment" option that lets you take one or more single-month deferrals over the life of the loan without making additional arrangements. Sometimes there are fees associated with car loan payment deferrals.
• Personal loans: Some lenders offered forbearance on personal loans during the COVID-19 pandemic, but hardship relief on personal loans typically takes the form of payment deferment. Deferment may not be available from all personal loan issuers, and eligibility may require proof of financial difficulty.

Forbearance vs. Deferment

The following table contrasts loan forbearance with loan deferment.

How Does Forbearance Affect Your Credit?

If you comply with the repayment terms that you agree to when you accept a forbearance arrangement, your credit scores can come out unscathed. But that can depend on your current credit scores, the nature of your other debts and the lender's policy about reporting forbearance payments to the national credit bureaus. Below are more details.

How Does Student Loan Forbearance Affect Your Credit?

Because student loan forbearance provisions are included in their loan agreements, federal student loans will remain listed in good standing on your credit reports during forbearance. As long as you meet eligibility requirements and maintain the agreed-upon payment schedule, your credit scores should not be affected by forbearance.

Private student loans may or may not contain forbearance provisions, and if they do allow for forbearance, they may be less lenient than those on federal loans. Consult your loan agreement or contact your loan servicer for details on how they report forbearance to the credit bureaus.

How Does Mortgage Forbearance Affect Your Credit?

As long as you comply with the terms of a mortgage forbearance agreement, your account should remain listed in good standing on your credit reports. Mortgage lenders can note that payments are in forbearance, but aren't required to.

If your mortgage is noted in forbearance, other lenders reviewing your credit report could factor that into their evaluation of your creditworthiness. Before entering a forbearance agreement, check with your lender about their policy so you know what others will see if they review your credit reports during or shortly after the relief period.

Because interest accrues during forbearance periods, outstanding balances on fixed-rate mortgages can increase, adding to your total debt. This may have a potential negative impact on your credit scores, but this effect will likely diminish when regular loan payments resume.

How Does Credit Card Forbearance Affect Your Credit?

If your credit card lender agrees to give you hardship relief and you follow the agreed-upon terms of the arrangement, it's possible (but unlikely) you'll see any negative entries on your credit report.

Credit card forbearance can hurt your credit score indirectly if accruing interest inflates your balance and the credit utilization rate on your card.

How Does Personal Loan Forbearance Affect Your Credit?

In the lingo of personal loans, "forbearance" refers to deferment—the authorized skipping of an agreed-upon number of payments, which are added to the end of the loan's original payment schedule. If you resume payments after your deferment period and keep up with them through the end of the (extended) repayment term, your credit reports will indicate the loan is in good standing and your credit scores should not be affected.

How Long Does Forbearance Stay on Your Credit Report?

If you abide by the terms of your forbearance agreement, your loan or credit card account will remain in good standing and your credit scores should not be affected. If your student loan is placed in forbearance, that may be noted on your credit report, but it should not impact your credit scores.

If your lender notes that your account is in forbearance when reporting suspended or reduced payments to the national credit bureaus, that is not considered negative information on your credit report, so it could remain on your credit reports as long as the account remains open.

The Bottom Line

Loan forbearance can bring welcome relief in the event of short-term financial strain. If your lender grants it, make every effort to resume regular payments when forbearance ends and to comply with the agreed-upon schedule for making up the payments that were excused during the relief period. Doing so may prevent your credit scores from harm. But even if your lender reports your adjusted payments to the credit bureaus, the harm to your scores will likely be less than you'd see if you simply failed to make your regular payments altogether.

If you're concerned about the effects of forbearance on your credit, checking your FICO^® Score^☉ for free from Experian can help you track its impact.