Financial Education
Resources to build, understand and manage credit
Does checking my credit report hurt my credit score? How can I improve my credit score? What’s the difference between a credit score and a credit report? These are a few of the questions I most often hear about credit, and the answers to these fundamental questions are essential to financial well-being. Understanding credit scores and the factors that influence overall credit health is important any time, but this is especially true in our current environment. As part of our ongoing commitment to consumer education on the road to recovery, I recently had the pleasure of partnering with Akbar Gbajabiamila, host of American Ninja Warrior, former football pro and financial fitness expert, for an Instagram Live event. Akbar is passionate about helping people develop a financial game plan and he understands having a good credit history is a key component of good financial health. During the Instagram Live event, I answered questions from Akbar’s fans and shared ways to improve your credit score through tools like Experian Boost. In case you missed it, you can watch the video recap on Akbar’s Instagram account (@akbar_gbaja) or at the following link: https://www.instagram.com/tv/CLpbdDJlaQ6/ View this post on Instagram A post shared by ??Akbar Gbajabiamila?? (@akbar_gbaja) A positive credit history can be the gatekeeper to many of the things we all want in life, and we’re committed to helping facilitate fair and affordable access to credit for all consumers, including those in marginalized communities. This is one of the many reasons I’m passionate about my role at Experian. Educating consumers about credit is an important part of getting the economy as a whole humming again and helping those most in need. If you have additional questions about credit, feel free to check out the free resources below. Additional credit education resources and tools Join Experian’s weekly#CreditChat hosted by @Experian on Twitter with financial experts every Wednesday at 3 p.m. Eastern time. Visit the Ask Experian blog for answers to common questions, advice and education about credit. Add positive telecom, utility and streaming service payments to your Experian credit report for an opportunity to improve your credit scores by visiting experian.com/boost. You can request a free copy of your credit report from each of the three credit bureaus once a week through April 20, 2022 by visiting annualcreditreport.com For additional resources, visit https://www.experian.com/consumereducationor experian.com/coronavirus.
There’s no question the COVID-19 pandemic is contributing to a unique 2020 holiday season, but there are consistent truths that remain when it comes to the holidays and personal finance. While the season is known for being merry and bright, sadly, financial challenges and stress are equally common for many this time of year. According to our latest holiday spending survey, 60% of consumers feel stressed about their finances during the holiday season and half feel the extra expense of the holidays makes them hard to enjoy. More than half (52%) say COVID-19 has caused credit or financial barriers which are preventing them from doing their shopping the way they had planned. At the same time, 62% agree holiday shopping puts a strain on their finances. In an effort to alleviate some of the financial stress some may be facing, I wanted to share three ways you can protect your financial health this holiday season and prepare for a financially healthy new year: Start with a budget and a plan. It’s easy to lose track of spending and take on unexpected debt during the holidays, which is why creating a budget is an important first step to protect your financial health. Experian research shows the average American plans to spend $775 on holiday gifts this season, but your holiday budget will depend on your unique financial situation. Outline how much you can realistically afford to spend and try to factor in expenses that are sometimes overlooked, which can be a challenge. In fact, our research found four out of five consumers often run into unexpected expenses they hadn’t planned for, including buying unexpected gifts (25%), gift wrapping supplies (25%) and mailing costs for sending gifts (21%). Once you’ve outlined your budget, creating a plan for who you need to shop for and where you’re going to shop can be a helpful next step. Our survey showed 62% of consumers plan to shop more online this year due to COVID-19. If you’re planning to do more shopping from the comfort of your home this year too, tracking online sales and promotions can help you save money, and factoring in shipping costs can help keep your holiday budget on track. Setting a budget and sticking to it, and having a shopping plan to avoid impulse buying will help keep you from falling victim to the pressure of overspending around the holidays. Use credit as a financial tool. Over half of shoppers say they will use credit cards and not cash when holiday shopping. This is an 8% increase from 2019. While using credit wisely is important all year, this is especially true around the holidays. The key is strategic use of credit – whether using a card that provides low interest, rewards points, or cash back – to improve the shopping experience and stretch your dollars. Over a quarter of people say they plan to open a new credit card for the holiday season, which is a 5% increase year-over-year. The top reasons for wanting to open a new card include seeking a promotional no annual percentage rate (APR) credit card, wanting to get a retail store discount, and maximizing spending by getting a card with cashback rewards. If you’re considering applying for a new credit card, improving your credit score can help you take advantage of the best credit offers this holiday season. Experian Boost allows you to get credit for paying your telecommunications, cell phone, utility bills, and streaming services payments on time. More than 4.9 million consumers have connected to the service since March of 2019 and about 61% of those who use Experian Boost see their scores improve. When you’re ready to explore credit card options, Experian’s free Credit Match program can help you find personalized credit card offers based on your unique credit history. Remember, credit is a financial tool, debt is a financial problem. Debt you can’t repay will certainly bring down one’s holiday spirit. If you don’t have a plan for paying off your credit card, using credit may not be a good idea. Protect your identity. The holidays may be the riskiest time of the year when it comes to identity theft and credit fraud. Identity thieves of all sorts are aware that consumers spend significantly more during the holiday season. While many of us are hunting or scrolling for the perfect gifts for friends and family, fraudsters are hard at work too. The number of consumers surveyed who have been identity theft victims during past holiday shopping seasons jumped to 24% from 12% in 2019. The holidays are always a ripe time for cybercriminals with the increased online traffic and this is especially true against the backdrop of COVID-19. To protect yourself from identity theft while shopping online, avoid using public WiFi networks, create strong passwords for your online accounts, and only shop on secure websites you are familiar with. If you are shopping at a store, be sure to cover your credit card information when you enter it, or your personal information if you are applying at the point of sale. Shoulder surfers can use their phones to take a quick photo or video to steal your identity. Also avoid leaving your purse or wallet, or any documents in your car. Identity thieves stalk parking lots looking for opportunity that is just a broken window away. Credit cards offer more protection for both online and in-person purchases than your debit card or cash, so consider using credit for your purchases. If fraud occurs, the money is not gone from your checking account and you can file a claim with your card issuer. Pay the balance in full right away to avoid interest charges. Checking your credit report often can help you spot fraudulent activity. You can get a free credit report from all three bureaus at AnnualCreditReport.com through April 2021. Identity theft monitoring is an easy way to monitor your financial accounts and credit report to identify possible fraud such as a credit card account opened in your name. While the holidays may look a little different this year when it comes to protecting your financial health the same rules still apply. For more information about how to protect your credit history in 2020 and beyond, visit www.askexperian.com or join our weekly CreditChat every Wednesday on Twitter at noon PST/3 p.m. EST.
At Experian, our mission is to increase financial inclusion by empowering consumers. Through our corporate responsibility work, we have always been committed to using our resources to help more people improve their financial health through non-profit partnerships, data analytics, products and services, volunteering and educational programmes. Now, we have an opportunity to reach even more people in hugely underserved communities. Experian has launched the global United for Financial Health project to empower vulnerable people to improve their financial health through education and action. Through the United for Financial Health programme, Experian is partnering with non-profit organizations across the globe to deliver tools and resources to help those affected the most, and certainly, COVID-19 has amplified the need. We have already launched our first three partnerships in the U.S: Operation HOPE – an organisation whose aim is to uplift disenfranchised youth and adults from poverty to thriving in a credit ecosystem. One of the goals of the partnership is to help ethnic minority groups who are struggling to raise and sustain a 700-credit score or higher. By helping people raise their credit scores we can shift their mindset from one of “survival” to “thriving” and make a real difference in their lives. For some, a higher score may mean the ability to purchase a new car, have a credit card, own a home, or simply save money for their family. Black Girl Ventures – a non-profit that advocates for Black and Brown women entrepreneurs and their small businesses. Our partnership will provide financial resources to help scale its BGV Style Pitch Competition and Amplify BGV Programs and we are a proud sponsor of BGV’s new weekly podcast, “From Hustling to Handling, How to Stay in Business.” Together, we will curate entrepreneurial education content to assist a broader audience with knowledge and best practices related to financial literacy and wealth management. NAACP Empowerment Programs – part of the largest and most pre-eminent civil rights organization in the U.S. Our partnership creates The Home Preservation Grant, which will provide grants to African American homeowners at risk of losing their homes because of COVID-19-related hardship. In the UK, we are delighted to launch a new partnership with the charity National Numeracy. Numeracy is the strongest predictor of a person’s financial literacy and is therefore crucial to their financial health. However, poor numeracy is widespread, and disproportionately affects low-income communities where people are most at risk of marginalization from the COVID-19 pandemic. Thankfully, confidence and competence with numbers is within everyone’s grasp, with the right support. Working together, we can inspire and support over 60,000 people to take positive steps towards building their confidence and competence with numbers, helping many of those most affected by this crisis take their next step towards improved financial health. We have already made good progress in a relatively short space of time and will continue to invest our energy into building further partnerships to reach more people in need of support. This is just the beginning of our journey, but we are confident that we can make a huge difference to millions of people in communities across the globe.
We know small businesses are critical to the vibrancy of our economy and communities. Watching how hard the COVID-19 pandemic has affected them and their founders has been troubling. Here at Experian, we created new tools to help small businesses navigate this uncertain time. But we want to do more, and help businesses survive and thrive even in “normal” times. That’s why I’m especially excited about our newest partnership with Black Girl Ventures (BGV). This is part of our United for Financial Health program, which aims to empower vulnerable consumers to improve their financial health and protect them from fraud and identity theft. Through this partnership,we will provide resources, tools and services to Black and Brown women entrepreneurs to enable them and their small businesses to grow and prosper. We know that long-standing inequities have created barriers for women, especially women of color. Our partnership will provide financial resources to help scale its BGV Style Pitch Competition and Amplify BGV Programs and we are a proud sponsor of BGV’s new weekly podcast, “From Hustling to Handling, How to Stay in Business.” Together, we will curate entrepreneurial education content to assist a broader audience with knowledge and best practices related to financial literacy and wealth management. The negative financial impact on these women and their businesses has had a reverberating effect across communities of color. Our United for Financial Health program is one of the many ways we are staying true to our mission to support all consumers and clients through their financial health journey, in normal and extraordinary times. This partnership with BGV will fuel the economic recovery by reaching millions of Black and Brown women entrepreneurs and, in turn, supporting the communities they serve.
If you’re anything like me, you’re likely spending much more time online these days. From online shopping to grocery and food delivery and thumbing through our social media feeds – the COVID-19 pandemic has many of us spending more time in our homes and “plugged in” than ever before. The COVID-19 pandemic has also contributed to an increase in fraud activity. According to the FTC from January to early October 2020, consumers have reported losing a total of more than $156 million to COVID-19-related fraud. At Experian, we are committed to protecting consumer financial health during the pandemic and beyond. Educating consumers about how to protect their personal information online is key to supporting this effort. As we prepare to enter the holiday season in our virtual world and in honor of National Cybersecurity Awareness Month, I’d like to share a few ways you can protect your financial health online: Shop Safely Online As I mentioned, the amount of shopping you do online has likely increased significantly since the start of the COVID-19 pandemic. This is a trend that’s expected to continue. In fact, according to a recent report from Experian, as many as half of consumers globally expect their spending online to increase in the next 12 months. Practicing safe online shopping habits is always important. This is especially true now. While you may not be spending as much time in airports or your local coffee shops, it is a good practice to avoiding using your financial information to make purchases online if you are on a public WiFi network. Without a password protected network, you have a higher risk of fraudsters gaining access to your banking information which could significantly damage your financial health. Using a virtual private network or a VPN can be an added layer of protection when you are entering your financial information online. Using a credit card to make your online purchases is also a useful way to protect yourself against losses tied to fraudulent charges. According to the federal Fair Credit Billing Act if your credit card — the physical card — is stolen and used to make fraudulent purchases, your issuer can hold you responsible for up to $50 in fraudulent charges. However, if you report the card stolen before any fraudulent charges are made, you have no liability. If your card number is stolen but you’re still in possession of the card, you’re not responsible for any fraudulent charges. Avoid Falling for Phishing Emails Phishing is an attempt to obtain sensitive information for criminal and fraudulent purposes through email. Against the backdrop of the pandemic, there have been increased reports of phishing attempts around COVID-19 testing, vaccines, treatments and cures. Keep in mind that generally if something sounds too good to be true, it likely is. To prevent damage to your identity or your financial health avoid opening any suspected phishing emails and never click on included links. While phishing emails are getting more sophisticated, there are a few clues that can help you identify one in your inbox. If you receive a suspicious looking email, look at the sender name or email address. Phishing emails tend to have suspicious email addresses that are often different than the name of the sender (it could be anything from a slight misspelling of the senders name to an email address that is completely different). It’s also common for phishing emails to use urgent language and include unusual attachments or links. While reputable organizations may sometimes ask for personal information over email, pay close attention to the details of the email before sharing any of your information. It may be a better idea to call the requesting organization and find out if there is a more secure way to do whatever it is they may be requesting. Always think twice before clicking any links. When in doubt, type the organization’s name into an internet search and visit the site directly. Protect Your Passwords This is a basic point, but one that is commonly overlooked. Using complex passwords can be your first line of defense against potential cyber threats. I know it can be challenging but avoid using the same password for multiple online accounts. When you’re creating unique passwords, it’s best to include a minimum of eight characters with a variety of letters, numbers and symbols. Keeping track of your passwords for your online bank accounts, email, social media, shopping apps and online medical portals can be a lot to manage. A password manager subscription can be a convenient and secure way to manage your passwords. They are affordable and more secure than writing down all your passwords or using the same password for multiple accounts. Avoid Over Sharing on Social Media Oversharing on social can lead to unwanted implications. For example, fraudsters and criminals can learn a lot about you from the data included in the photos you share online, including where you are and when you are there. Avoid photos of items that can be used to determine more information about you such as your license plate or the front of your home. Keep in mind, that while it may be tempting to share photos of your family vacations on your social networks, this may also tell unwanted visitors that you are not home. Use tools to Combat Fraudsters Checking your credit report regularly can help you stay informed about potentially fraudulent activity. In an effort to encourage consumers to monitor and understand the information in their credit reports, Experian joined forces with the other U.S. credit reporting agencies, to offer free weekly credit reports to all Americans through April 2021 via www.annualcredreport.com. Credit monitoring services can help you spot potential fraud early. Experian offers free and paid services that provide daily credit monitoring alerts for things like new inquiries and accounts opened in your name, changes to your personal information and suspicious activity detected on your Experian credit report. You can find more National Cybersecurity Awareness Month resources to protect yourself online here.
As the nation’s leading Credit Bureau, we have two primary goals. On one hand, we want to provide lenders the data necessary to assess the risk that a loan applicant represents. On the other hand, we want to help consumers build credit and improve access to credit. This bifurcated set of objectives is the inspiration behind our annual State of Credit report. Each year, this report provides a view into how consumers are managing credit, including their debt levels, on-time payments and utilizations rates. Now in its 11th year, our latest report shows promising signs in terms of how consumers are managing their debts against the backdrop of the COVID-19 pandemic. While there is no question the global pandemic has created many financial challenges for consumers, this report shows something I’ve always believed: many American consumers are resilient, they make smart decisions in light of a difficult environment and they adjust their financial habits. Specific evidence for that assertion can be found as we compare 2019, the year prior to the pandemic and 2020, the year marked by the impacts of the pandemic. Year-over-year, consumers lowered their credit card balances, decreased their utilization rates and reduced delinquency rates on the recurring monthly payments they need to make to service their debt. These factors attributed to an average credit score of 688 — a six-point increase from the same period in 2019. You can view additional findings from this year’s report here. The Value Credit Data in America When determining whether to extend an offer of credit to a consumer, lenders can gain excellent insight into a consumer’s risk profile from the information included in a consumer’s credit profile. It details a consumer’s financial track record and delivers a historical view of how a consumer is managing and repaying debt over time. This information helps lenders determine who can fulfill their financial obligations and ensures consumers continue to have access to credit. Recently, there are reports of using alternative means to assess consumer creditworthiness such as cash-flow data. While Experian is a recognized leader and advocate for the use of alternative data, the use of cash flow data alone can be risky. For example, consumer’s savings have also increased since the start of the pandemic. If a consumer is responsibly and regularly investing in some form of savings, this would narrow their cash flow, which may be misleading and constrain financial access. Looking at a consumer’s credit utilization rate, payment histories and credit balances through traditional credit data remains the primary means to effectively assess lending risk for most American consumers. When necessary, layering traditional credit data with alternative credit data can provide lenders with a more detailed view of a borrower’s stability, ability and willingness to repay. For example, innovations like Experian Boost empower consumers to contribute on time payment histories for additional monthly recurring financial obligations, such as their cable, utilities, mobile phone or Netflix service, directly to their Experian credit report. These payment histories can demonstrate to lenders how reliably consumers are servicing these payments. Incorporating this information has been proven to increase the predictiveness of a consumer’s credit reputation and can complement the data derived from their lending history. Of course, not every American consumer is in a position to adjust their financial habits and make the commensurate smart decisions. Some have had the rug pulled out from underneath them. The CARES Act stimulus was effective in increasing the number of consumers who could maintain their financial health, but still some need more help as we embark on the road to economic recovery from the COVID-19 pandemic. At Experian, we feel that educating consumers about the information included in their credit report and ways they can improve their credit histories will be another factor in getting the economy as a whole humming again and helping those most in need. We pride ourselves to be “The Consumers’ Bureau” and, as such, education will continue to be a primary focus for us. In an effort to encourage consumers to regularly monitor and understand the information in their credit reports, Experian joined forces with the other U.S. credit reporting agencies to offer free weekly credit reports to all Americans through April 2021 via www.annualcreditreport.com. Experian also offers consumers free access to their credit report and ongoing credit monitoring at Experian.com. For additional ways to maintain a healthy credit profile, I encourage you to: Join Experian’s #creditchat hosted by @Experian on Twitter with financial experts every Wednesday at 3 p.m. Eastern time. Visit the Ask Experian blog for answers to common questions, advice and education about credit. Add positive telecom and utility payments to your Experian credit report for an opportunity to improve your credit scores by visiting experian.com/boost[1] For additional resources, visit https://www.experian.com/consumereducation or experian.com/coronavirus. [1] Results may vary. See Experian.com for details
At Experian, we are committed to educating consumers about how to manage their credit histories and protect their financial health. At the same time, we know the COVID-19 pandemic has created a difficult economic reality for millions of Americans. In response, many people have questions about how to protect themselves financially, including their credit histories and scores. To address these questions, we partnered with pro football legend and American Ninja Warrior host Akbar Gbajabiamila to educate consumers across the country about steps they can take to protect their financial health and their credit standing. Gbajabiamila, author of “Everyone Can be a Ninja,” is passionate about helping people develop a financial game plan and he understands having a good credit history is a key component of good financial health. These interviews provided a platform for Gbajabiamila to share the four-point financial fitness game plan consumers can use protect and improve their financial health during the pandemic, including: Contacting your lenders as soon as possible if you think you may miss a payment. Many lenders provide emergency support, which can help protect your credit standing. Getting credit for paying cable, satellite, internet, Netflix and utility bills on time with Experian Boost Exploring balance transfer options or other introductory credit offers through Experian Credit Match Checking your credit report regularly. It’s free once a week at AnnualCreditReport.com. Tune in to Gbajabiamila’s interview with NBC Washington and hear his message to consumers in the videos below. For more credit education resources and tools: Join Experian’s #CreditChat hosted by @Experian on Twitter with financial experts every Wednesday at 3 p.m. Eastern time Visit the Ask Experian blog for answers to common questions, advice and education about credit For additional resources visit www.experian.com/coronavirus
As financial uncertainty persists, you may find yourself turning to your credit cards to get through this challenging time. While credit cards can be a valuable financial tool when used wisely, they can also be a source of financial stress if you find yourself charging more than you’re able to pay back. Not managing your debt well can also affect your credit utilization, a term you’ve probably heard of but may not know much about. Simply put, credit utilization measures the amount of available credit you’re using on your credit cards. It’s a ratio of your outstanding balance to your overall credit limit. So, what does it mean for your credit score? Let’s unpack some myths and facts that may help you understand the importance of credit utilization, as well as ways to calculate and manage your utilization. Myths vs. Facts Myth: Credit utilization has no impact on your credit score if you pay your bills on time. Fact: In FICO’s most commonly used credit-scoring model, debt and credit utilization account for 30% of your overall score, second only to your payment history. This means the closer you are to your credit card limit, the lower your credit score might be. Aim to keep your utilization per credit card as low as possible to safeguard your score. As your utilization ratio approaches 30 percent of your limits, your scores will begin to decrease much more rapidly. People with the best scores generally have utilization of less than 10 percent, and you never want it to exceed 30%. Myth: If you max out a credit card, you should take out a new card to free up your overall credit limit and improve your utilization ratio. Fact: There are two types of credit utilization measurement: per-card and overall. Per-card utilization looks at your ratio of debt to credit limit on an individual card basis. Overall utilization takes your total utilization across all cards into account. Credit scoring models take both per-card and overall utilization into account, so having just one maxed out card could hurt your credit score. Opening a new account also introduces several aspects that may actually increase your risk. There is a new inquiry. A brand new account has been added to your credit report that you haven’t started to pay on, yet. And because scores require three to six months of activity before being included in score calculations, it’s not helping your scores. In fact, the risk associated with opening a new account may outweigh any potential benefit of reducing your utilization rate. Myth: Once you pay off a credit card, your credit score will improve. Fact: While your credit score could see improvements if you pay off a credit card, the impact may not be immediate. Your lender reports your account status about once a month, so it could be several weeks before your report is updated. Scores calculated after your report is updated will reflect the paid off amount. Depending on when you made a payment, it could take a full billing cycle before your credit report is updated and your credit score reflects those changes. Now that we’ve established the basics of credit utilization and how it can impact your score, consider how to keep it in check. Calculate your utilization The first step to getting your utilization rate in a good place is to determine your current utilization percentage. You can calculate your utilization rate by: Adding up the total balances on all credit cards Adding up the total credit limit across credit cards Dividing the total balance (from step 1) by the total credit limit (from step 2) Multiplying this number by 100 to see your credit utilization ratio as an easy-to-read percentage Manage your utilization Thirty percent utilization is not a goal or target. This is a common misconception about credit utilization. Thirty percent is a number you should strive to stay as far below as possible. It represents a mathematical limit at which your scores will begin to plummet. The lower your utilization rate, the better. Paying your balance in full is ideal, but that’s not always practical. As a general rule of thumb, aim to keep your utilization as low as possible to minimize its impact on your credit score. If you’re wondering how to lower your credit utilization ratio, consider the following strategies: Make multiple payments throughout the month. Instead of allowing the balance to accumulate, pay down your debt in increments throughout the month to ensure the amount on your billing statement doesn’t close in on your limit. Time your payments, and make sure you pay in full each month. Time your payments ahead of your statement closing date, so your most up-to-date credit utilization information is calculated into your score. It’s ideal to pay the balance due in full. If you can’t pay it in full, pay as much as you can to keep your utilization as low as possible. Keeping open credit accounts. Even if you don’t intend to use them much, closing accounts with zero balances can lower your overall credit utilization. You need to make a small purchase from time to time to show activity in the account, though. Accounts with no activity reported will be excluded from scores after a period of time. If you don’t use the card, it could still be on your credit report but not be helping your credit scores. If you’re concerned about making payments on time, connect with your lender to determine the best path forward. Check out my recent post on deferment and forbearance relief options for more information.
The COVID-19 pandemic reshaped Americans’ personal and financial lives. If you find yourself in a situation that could make fulfilling your credit card, loan, or mortgage payments challenging, you may be wondering what relief options are available to help navigate these changes. The good news is there are options if you need financial support during this time. However, it can be difficult to know where to start. The two primary relief avenues are deferment and forbearance. While different in practice, these terms are often used synonymously, even by those within the credit industry. While similar at first glance, there are significant differences between forbearance and deferment agreements. While both are intended to pause or reduce payments for a certain period, there are variances when it comes to how you must repay the delayed payments. It’s important to understand how these two options work when speaking with your lender, so you can choose the best path for your personal financial situation. Whichever avenue you take, remember that deferment and forbearance are both temporary measures and shouldn’t be used as permanent solutions. Pausing Payments with Deferments You may have seen the term deferment in the news more recently with mortgage relief and student loan deferral options. So, what exactly is deferment? Through this option payments are put on pause and deferred until a later date. This is a longer-term strategy that enables you to pay back your loan over time, when your financial situation puts you in a position to do so responsibly. Interest can sometimes accrue during a deferment period, depending on the type of loan and the lender you’re working with, so it is important to talk with your lender to fully understand your agreement terms. Periods of deferment vary in length – in some cases lasting as long as your financial situation requires. You should opt for deferment if your financial situation or an unexpected event, such as being let go from your job, creates an undue burden that makes it impractical or impossible to keep up with regular payments. Temporary Relief with Forbearance The other option to discuss with your lender is forbearance. Whereas deferment allows you to pay back a loan over time, forbearance is a relief strategy that typically requires the borrower to pay a lump sum and accrued interest at the end of the forbearance period. For example, if you paused payments for five months, at the end of those five months, you would pay your lender the total of paused payments and the accrued interest. If you’re seeking forbearance for federal student loans, there are two different types of forbearance: mandatory and discretionary. With mandatory forbearance, lenders are required to pause payments if a borrower meets a set of financial criteria that could prevent them from making payments on time. Eligibility for mandatory forbearance includes: enrolment in a medical or dental residency program, payments on your federal student loans being greater than 20% of your total monthly gross income, and other circumstances that could hinder your ability to make payments. Confirm whether you’re eligible with your lender. Discretionary forbearance means the lender makes the decision at their discretion to put payments in forbearance based on your unique financial situation. Forbearance is generally a shorter-term option and the avenue to take if you don’t qualify for deferment. Consider forbearance in times of true financial crises, such as an unexpected medical bill, that would temporarily inhibit you from making a monthly payment. How to Work with Your Lender on Relief Options While discussing these options with your lender, it is critical to have a full understanding of what the agreement will entail – from interest rates to your timeline for payment – to ensure you’re in the best position to fulfill the agreement with your lenders once your payments resume.