How does Forbearance Affect My Credit?

forbearance affect on credit

There may be times when you get dangerously close to not being able to make your student loan payment. This is understandable. While the value of a college education can last a lifetime, unfortunately so can the student loan debt you incurred to get it. And if you’re fresh out of school and not earning enough income yet, the amount due on your student loan every month can really hurt.

If paying back your student loan has become more difficult, it’s important to weigh your options carefully. The obvious choice is to avoid payment delinquency or a loan default however you can, as both can do costly damage to your credit score.

But what about something like forbearance?

What is forbearance and how does it help?

Like deferment, forbearance allows you to temporarily stop making your monthly loan payments. Forbearance is not debt forgiveness; you will still have to pay back your loan. But it can give you relief by allowing you some time to get out of a financial hole.

Unlike deferment, forbearance means you’re still responsible for the interest accrued during the time you’re not making payments. Depending on the type of loan you have, you can pay it each month as it accrues — think of it as paying the interest only on your loan. Or you can let the interest accrue over time and have it added to the principal. But in this case, you will pay more over the life of your loan.

It’s important to understand that because forbearance gives temporary relief, many people get accustomed to not paying that debt every month. When it’s time to start making payments again, they have a hard time budgeting for it. Forbearance doesn’t make sense if down the road you’re still struggling to make ends meet. The goal is to stabilize your finances so you can make the payments without problems.

What does forbearance do to my credit?

While it may seem like deferring your loan payments could be a mark against you in the eyes of the credit bureaus, in reality, forbearance does not affect your credit score. While the event will show up on your credit report, you will not be penalized for it.

In fact, deferment and forbearance can help prevent damage to your credit score by alleviating the risk of making late payments or missing payments altogether.

Since your payment history accounts for 35 percent of your credit score, late or missed payments — not to mention outright loan default — can lower your score significantly. This affects your ability to qualify for future loans and other forms of credit, and can lead to getting charged much higher interest rates. You may also have to spend time fixing your credit through credit counseling, credit repair, or other types of consumer financial services.

Securing your credit for the long term

Student loans are a reality for many people. But they shouldn’t become so burdensome that the temptation is to default on them. Making your payments on time, limiting your other debt, and recognizing when you may need help will go a long way toward keeping your credit healthy.

If you have past issues related to student loans or other debts, consider working with the credit experts at Lexington Law to help clean up your credit report. We can help you with credit repair and fixing errors on your credit report to ensure that it is fair and accurate.

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