How does loan forbearance affect credit?

Loan forbearance allows you to temporarily pause or decrease the amount of your loan payments. It may be an option for borrowers experiencing financial hardship. But forbearance could also have an impact on your credit history and credit scores.

Read more on how loan forbearance works and how it may impact your credit. 

Key takeaways

• Loan forbearance is the short-term reduction or suspension of loan repayment, often approved by a lender to help a borrower through financial hardship.
• Loan forbearance is typically only granted upon request and isn’t guaranteed. 
• Some federally backed student loans contain special provisions that guarantee forbearance under certain specific criteria.
• If you’re on a loan forbearance plan, it could be reported to the credit bureaus, and it may affect your credit.

Loan forbearance can temporarily pause or reduce your loan payments when you’re facing financial difficulty. If it’s available, the actual period of time for loan forbearance is dependent on your specific debt and your agreement with your lender or creditor. 

At the end of the forbearance period, you may have to pay back what you owe, plus interest and possible fees. Keep in mind that you typically have to ask for forbearance, and your lender or creditor isn’t required to fulfill your request. 

If your loan forbearance is granted, some common terms that might apply during the forbearance period include:

• Reduced or suspended payments
• A reduced interest rate
• Waived late fees

Keep in mind that various lenders and creditors can have different eligibility requirements and different terms for the forbearance agreement. 

While typically associated with mortgages, forbearance might be available for other types of loans too. So if you’re facing financial hardship and have a loan you’re struggling to pay—such as an auto loan, mortgage or student loan—consider contacting your lender. They may have options to help you get back on track with your account.

Forbearance plans may look different depending on the type of loan. Here are some common loan forbearance programs.

If you’re struggling to pay the minimum balance on monthly credit card payments, you can consider asking your credit card issuer about a forbearance program. 

Depending on your circumstances and your issuer’s policies, a credit card forbearance program might temporarily:

• Lower your monthly payments
• Lower your interest rate
• Provide a repayment plan
• Let you miss one or multiple payments without a penalty charge

But before you agree to a credit card forbearance program, be sure you understand how your issuer handles things like fees and interest during forbearance. 

You could also consider other debt-relief options, such as debt consolidation or credit counseling.

Mortgage forbearance is a form of loss mitigation that is sometimes provided by lenders to help homeowners avoid foreclosure in the case of a short-term financial hardship like job loss or illness.

To apply for a mortgage forbearance, you typically have to provide proof of a temporary financial hardship. Your mortgage lender may ask for proof that you’ll be able to resume monthly mortgage payments and repay all missed payments, including interest when the forbearance period ends. To learn more about the mortgage forbearance options available to you, you might want to contact your lender. 

Not everyone may qualify for traditional mortgage forbearance. If you don’t, you might want to consider looking into alternatives, including:

• Debt management programs
• Debt settlement
• Refinancing
• Mortgage modification

Student loan forbearance is placed into two categories: general and mandatory. 

• General forbearance may be granted because of financial hardship, employment changes or medical costs. 
• Mandatory forbearance requests must be accepted by lenders if certain scenarios hold true—for example, if you serve in the National Guard or are a qualifying teacher. Loan services should have more information to help you understand if you qualify.

It may also be helpful to know that those with federally backed loans might qualify for loan deferment. Loan deferment could be more helpful than loan forbearance because you don’t accrue interest during the deferment period.

Auto loan forbearance isn’t a common option, because auto loans typically don’t have the same guarantees from the federal government that other loans do. 

But when auto loan forbearance plans are offered, they might include deferred payments or waived late fees. You can speak to your lender for specifics on what an auto loan forbearance might look like for you. 

The Consumer Financial Protection Bureau has a list of other options that might help if you’re worried about making your car payments. They include working with a lender to: 

• Change your payment due date
• Request a payment plan
• Ask for payment extensions or deferrals
• Refinance your auto loan

Depending on the type of account and forbearance program, some lenders might report forbearance to the credit bureaus. If this happens, loan forbearance may have an effect on your credit history and credit scores. 

The Consumer Financial Protection Bureau recommends getting a forbearance agreement in writing. That’s because without an agreement, payments that are late or not fully paid might be considered delinquencies and could negatively affect your credit.  

Whether your forbearance is reported to the credit bureaus and whether it impacts your credit can depend on the:

• Lender
• Type of forbearance
• Terms of your agreement 

Here are some examples of how this may play out with common types of loans:

• Student loans: According to Experian®, if your student loan lender reports the account to the credit bureaus and your account is in forbearance, the loan will likely appear on credit reports in good standing, and late or missed payments may not be reported. 
• Mortgages: Missing or not paying your full mortgage payments—even with a forbearance agreement—is typically considered delinquency. You may want to check with your lender about its policy for reporting account information to the credit bureaus.
• Credit cards: As long as you keep up with payments as agreed upon with your credit card issuer, it’s unlikely that a credit card forbearance plan will negatively affect your credit. But a forbearance plan could indirectly harm your credit in other ways. For example, you might be granted credit card forbearance that includes reduced or suspended minimum payments. If you continue making purchases and not paying as much toward your balance, your credit utilization ratio could increase. And that could result in a negative impact to your credit scores. 

Loan forbearance isn’t the best option for everyone. But in the right situation, it can help if you’re having trouble making your required payments.

It’s a good idea to do your research when considering any kind of loan forbearance. That includes speaking to your lender or creditor about their loan forbearance programs and what they might mean for you and your credit.

You can also get ahead by monitoring your credit with CreditWise from Capital One. CreditWise gives you free access to your credit report and credit score—without hurting your credit scores. And CreditWise is free and available to everyone, even if you don’t have a Capital One account. You can also request free copies of your credit reports from AnnualCreditReport.com.