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. 

While loan forbearance is often confused with loan deferment, there are some differences. A major difference is that interest typically does not accrue during the deferment period. However, when in forbearance, interest remains a factor. Read more on how loan forbearance works and how it may impact your credit. 

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 multiple types of loans. 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. 

Credit card forbearance

If you’re struggling to pay the minimum balance on monthly credit card payments, you might want to ask your lender about a forbearance program. Lenders may offer these programs to assist you in times of financial hardship. 

Depending on your circumstances and the lender’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

Your circumstances, account history and status, as well as the lender’s policies, might determine the options available to you. 

Before you sign up for a credit card forbearance program, you may want to ask the lender about any considerations. Interest will likely still accrue on your balance and can add up over time, especially if you have a high balance. You might want to also ask about any potential late fees. 

Mortgage forbearance

With mortgage forbearance, you may be able to prevent foreclosure for a period of time. Mortgage forbearance is a form of loss mitigation that is provided by lenders to help homeowners avoid foreclosure. 

Applying for a mortgage forbearance typically involves providing proof of your temporary financial hardship. Your lender may ask for proof that you’ll be able to resume 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 alternate methods to help avoid foreclosure like:

• Debt management programs
• Debt settlement
• Mortgage modification

If you’re looking for mortgage relief options as a result of COVID-19, you may want to check with your lender or visit the Consumer Financial Protection Bureau’s website for more information.

Student loan forbearance

Student loan forbearance can act differently than other types of forbearance do. If your student loan is federally backed, your loan agreement may contain the forbearance options available to you. 

Student loan forbearance is placed into two categories: general or mandatory. General forbearance may be granted because of financial hardship. Mandatory forbearance requests must be accepted by lenders if certain scenarios hold true for you—if you serve in the National Guard or are a teacher who qualifies for student loan forgiveness, for example. You might want to speak to your loan servicer for more information on what qualifications must be met for mandatory loan forbearance. 

It may be helpful to know that those with federally backed loans might qualify for loan deferment. Loan deferment could be more beneficial than loan forbearance because you accrue no interest during the deferment period.

Auto loan forbearance

Auto loan forbearance isn’t typical because auto loans don’t have the same guarantees from the federal government as other loans do. But the COVID-19 pandemic has led some lenders to make accommodations for those struggling with payments. Auto loan forbearance plans might include deferred payments or waived late fees. You may want to speak to your lender for specifics on what an auto loan forbearance might look like for you. 

Other options for helping you to make payments could include asking for a different payment due date, a payment plan, an extension or to refinance. Keep in mind each option has its own pros and cons.

A loan forbearance may or may not show up on your credit report. That can depend on the lender and type of forbearance. Depending on the type of account and forbearance program, some lenders might note your account is in forbearance to the credit bureaus.

It’s also a good idea to keep a close eye on your credit reports. One way to monitor your credit is with CreditWise from Capital One. CreditWise gives you free access to your TransUnion® credit report and weekly VantageScore® 3.0 credit score—without hurting your score. CreditWise is free and available to everyone—even if you don’t have a Capital One account.

You can also get free copies of your credit reports from the three major credit bureaus. Visit AnnualCreditReport.com or call 877-322-8228 to learn more.

Loan forbearance may have an effect on your credit history and credit scores, depending on whether it’s reported to the credit bureaus and how it’s reported. The forbearance agreement—which the Consumer Financial Protection Bureau recommends getting in writing—is important. Without an agreement, and depending on the type of forbearance, payments that are late or not fully paid might be considered delinquencies and could negatively affect your credit scores.  

Whether your forbearance is reported to the credit bureaus can depend on your lender, the type of forbearance and the terms of your agreement. If your student loan is in forbearance, and the lender is reporting the account to the credit bureaus, it will typically be reported to credit bureaus as in good standing, according to Experian®. Missing or not paying your full mortgage payments—even under a forbearance agreement—is typically considered a delinquency. You may want to check with your lender about its policy for reporting account information to the credit bureaus.

Events that could happen during a forbearance period may indirectly affect your credit too. 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 on your credit scores. 

Everyone’s financial situation is unique. And due to the COVID-19 pandemic, many have faced financial difficulties. But there are government programs available to provide pandemic relief. 

Capital One’s Relief Tool can help you explore what state and federal government programs may be available to you. You also might want to reach out to your lenders or creditors to explore their options for financial assistance. 

A loan forbearance might not be 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.