How does loan forbearance affect credit?

Loan forbearance doesn’t directly impact your credit scores, but it may be noted on your credit reports and could have indirect effects if it’s not managed properly. That’s because during a forbearance period, lenders generally report paused payments as part of a hardship agreement rather than as late or missed payments.

Learn more about how loan forbearance works and how it may impact your credit scores.

What you’ll learn:

• 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.
• Typically, forbearances are available for several types of loans—such as mortgages, auto loans and student loans. 
• If you’re on a loan forbearance plan, it could be reported to the credit bureaus, and future lenders may consider that information when evaluating a credit application.

Loan forbearance is a temporary arrangement that allows you to pause or reduce your loan payments during a short-term financial hardship, such as job loss or illness. It doesn’t forgive or eliminate the amount you owe. 

Generally, forbearance works like this:

• Payments may be paused or reduced. Loan forbearance may let you pause or reduce your monthly payments for up to 12 months.
• Interest may continue to accrue. For many types of loans, interest continues to accumulate during the forbearance period, increasing the amount you’ll eventually repay.
• Postponed payments must be repaid. Any postponed payments, along with any accrued interest, must be repaid later. Depending on your lender and loan terms, repayment may come as a lump-sum payment, higher monthly payments or an extended loan term.

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.

Credit card forbearance is a temporary hardship program that some card issuers offer. Forbearance may provide you with:

• Lower monthly payments
• A lower interest rate
• A repayment plan
• The ability to miss one or multiple payments without a penalty charge

It doesn’t eliminate your debt, and you’ll still be responsible for repaying the full balance.

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

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

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

To apply for mortgage forbearance, you’ll typically need to:

• Contact your lender. Contact your mortgage lender as soon as possible, by phone or through your online account, to discuss your options.
• Explain your financial situation. Be prepared to share details about your income, your expenses and the circumstances impacting your ability to make your payments.
• Understand the repayment terms. Before pausing payments, review the forbearance agreement so you know when it ends and how any missed payments and accrued interest will be repaid.

Not everyone may qualify for traditional mortgage forbearance. If you don’t, you might consider looking into alternatives, including debt management programs, debt settlement, refinancing or mortgage modification.

Student loan forbearance is a short-term option that allows you to reduce or pause your loan payments through your federal student loan servicer or private lender. While it can provide short-term financial relief, interest may continue to accrue, increasing the total amount you’ll repay.

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

• General forbearance: This may be granted because of financial hardship, employment changes or medical costs. 
• Mandatory forbearance: These 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 is a temporary arrangement that offers eligible borrowers payment deferment or skip-a-payment programs. These programs aren’t automatic and typically require lender approval based on financial hardship.

The Consumer Financial Protection Bureau (CFPB) 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 request a payment plan, asking for payment extensions or deferrals or refinancing your auto loan.

A forbearance won’t directly hurt your credit scores—if you meet the terms of the agreement.

It may appear on your credit report, though, because some lenders may report a forbearance to the credit bureaus. But instead of reporting the account as delinquent, lenders typically report it as current or in forbearance, which can help you avoid the negative impact of missed or late payments.

Even though it won’t typically lower your credit scores directly, a forbearance can still affect your credit profile in several ways:

• Account status: If you follow the terms of your forbearance agreement, lenders generally report your account as current or in forbearance rather than past due.
• Previous missed payments: Any late or missed payments that occurred before your forbearance began can continue to affect your credit.
• Future credit applications: Some lenders may consider a forbearance notation when evaluating future loan or credit applications.
• Interest accumulation: Interest that accrues during forbearance can increase your loan balance and, in some cases, may indirectly affect your credit if balances become difficult to manage. 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.

Loan forbearance generally doesn’t have a direct impact on your credit scores, and 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. You can also request free copies of your credit reports from AnnualCreditReport.com.